Centerblue.org

This is probably the best, most intellectual article on politics I have read in years. It not only goes into Obama’s values and agenda, but also defines the core moral value differences between progressives and conservatives–and why the latter feel so threatened by the current economic crisis.

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The Obama Code

By George Lakoff

Berkeley, CA. February 24, 2009.

As President Obama prepares to address a joint session of Congress, what can we expect to hear?

The pundits will stress the nuts-and-bolts policy issues: the banking system, education, energy, health care. But beyond policy, there will be a vision of America—a moral vision and a view of unity that the pundits often miss.

What they miss is the Obama Code. For the sake of unity, the President tends to express his moral vision indirectly. Like other self-aware and highly articulate speakers, he connects with his audience using what cognitive scientists call the “cognitive unconscious.” Speaking naturally, he lets his deepest ideas simply structure what he is saying. If you follow him, the deep ideas are communicated unconsciously and automatically. The Code is his most effective way to bring the country together around fundamental American values.

For supporters of the President, it is crucial to understand the Code in order to talk overtly about the old values our new president is communicating. It is necessary because tens of millions of Americans—both conservatives and progressives—don’t yet perceive the vital sea change that Obama is bringing about.

The word “code” can refer to a system of either communication or morality. President Obama has integrated the two. The Obama Code is both moral and linguistic at once. The President is using his enormous skills as a communicator to express a moral system. As he has said, budgets are moral documents. His economic program is tied to his moral system and is discussed in the Code, as are just about all of his other policies.

Behind the Obama Code are seven crucial intellectual moves that I believe are historically, practically, and cognitively appropriate, as well as politically astute. They are not all obvious, and jointly they may seem mysterious. That is why it is worth sorting them out one-by-one.

1. Values Over Programs

The first move is to distinguish programs from the value systems they represent. Every policy has a material aspect—the nuts and bolts of how it works— plus a typically implicit cognitive aspect that represents the values and ideas behind the nuts and bolts. The President knows the difference. He understands that those who see themselves as “progressive” or “conservative” all too often define those words in terms of programs rather than values. Even the programs championed by progressives may not fit what the President sees as the fundamental values of the country. He is seeking to align the programs of his administration with those values.

The potential pushback will come not just from conservatives who do not share his values, but just as much from progressives who make the mistake of thinking that programs are values and that progressivism is defined by a list of programs. When some of those programs are cut as economically secondary or as unessential, their defenders will inevitably see this as a conservative move rather than a move within an overall moral vision they share with the President.

This separation between values and programs lies behind the president’s pledge to cut programs that don’t serve those values and support those that do — no matter whether they are proposed by Republicans or Democrats. The President’s idealistic question is, what policies serve what values? — not what political interests?

2. Progressive Values are American Values

President Obama’s second intellectual move concerns what the fundamental American values are. In Moral Politics, I described what I found to be the implicit, often unconscious, value systems behind progressive and conservative thought. Progressive thought rests, first, on the value of empathy —- putting oneself in other people’s shoes, seeing the world through their eyes, and therefore caring about them. The second principle is acting on that care, taking responsibility both for oneself and others, social as well as individual responsibility. The third is acting to make oneself, the country, and the world better—what Obama has called an “ethic of excellence” toward creating “a more perfect union” politically.

Historian Lynn Hunt, in Inventing Human Rights, has shown that those values, beginning with empathy, lie historically behind the human rights expressed in the Declaration of Independence and the Constitution. Obama, in various interviews and speeches, has provided the logical link. Empathy is not mere sympathy. Putting oneself in the shoes of others brings with it the responsibility to act on that empathy—to be “our brother’s keeper and our sister’s keeper”—and to act to improve ourselves, our country, and the world.

The logic is simple: Empathy is why we have the values of freedom, fairness, and equality — for everyone, not just for certain individuals. If we put ourselves in the shoes of others, we will want them to be free and treated fairly. Empathy with all leads to equality: no one should be treated worse than anyone else. Empathy leads us to democracy: to avoid being subject indefinitely to the whims of an oppressive and unfair ruler, we need to be able to choose who governs us and we need a government of laws.

Obama has consistently maintained that what I, in my writings, have called “progressive” values are fundamental American values. From his perspective, he is not a progressive; he is just an American. That is a crucial intellectual move.

Those empathy-based moral values are the opposite of the conservative focus on individual responsibility without social responsibility. They make it intolerable to tolerate a president who is The Decider—who gets to decide without caring about or listening to anybody. Empathy-based values are opposed to the pure self-interest of a laissez-faire “free market,” which assumes that greed is good and that seeking self-interest will magically maximize everyone’s interests. They oppose a purely self-interested view of America in foreign policy. Obama’s foreign policy is empathy-based, concerned with people as well as states—with poverty, education, disease, water, the rights of women and children, ethnic cleansing, and so on around the world.

How are such values expressed? Take a look at the inaugural speech. Empathy: “the kindness to take in a stranger when the levees break, the selflessness of workers who would rather cut their hours than see a friend lose their job, the firefighter’s courage to storm a stairway filled with smoke, but also a parent’s willingness to nurture a child…” Responsibility to ourselves and others: “We have duties to ourselves, the nation, and the world.” The ethic of excellence: “there is nothing so satisfying to the spirit, so defining of character, than giving our all to a difficult task.” They define our democracy: “This is the meaning of our liberty and our creed.”

The same values apply to foreign policy: “To the people of poor nations, we pledge to work alongside you to make your farms flourish and make clean waters flow; to nourish starved bodies and feed hungry minds.” And to religion as well: By quoting language like “our brother’s keeper,” he is communicating that mere individual responsibility will not get you into Heaven, that social responsibility and making the world better is required.

3. Biconceptualism and the New Bipartisanship

The third crucial idea behind the Obama Code is biconceptualism, the knowledge that a great many people who identify themselves ideologically as conservatives, or politically as Republicans or Independents, share those fundamental American values — at least on certain issues. Most “conservatives” are not thoroughgoing movement conservatives, but are what I have called “partial progressives” sharing Obama’s American values on many issues. Where such folks agree with him on values, Obama tries, and will continue to try, to work with them on those issues if not others. And, he assumes, correctly believe, that the more they come to think in terms of those American values, the less they will think in terms of opposing conservative values.

Biconceptualism lay behind his invitation to Rick Warren to speak at the inaugural. Warren is a biconceptual, like many younger evangelicals. He shares Obama’s views of the environment, poverty, health, and social responsibility, though he is otherwise a conservative. Biconceptualism is behind his “courting” of Republican members of Congress. The idea is not to accept conservative moral views, but to find those issues where individual Republicans already share what he sees as fundamentally American values. He has “reached across the aisle” to Richard Luger on nuclear proliferation, but not on economics.

Biconceptualism is central to Obama’s attempts to achieve unity —a unity based on his understanding of American values. The current economic failure gives him an opening to speak about the economy in terms of those ideals: caring about all, prosperity for all, responsibility for all by all, and good jobs for all who want to work.

I think Obama is correct about biconceptualism of this sort — at least where the overwhelming proportion of Americans is concerned. When the President spoke at the Lincoln Day dinner recently about sensible Midwestern Republicans, he meant biconceptual Republicans, who are progressive and/or pragmatic on many issues.

But hardcore movement conservatives tend to be more ideological and less biconceptual than their constituents. In the recent stimulus vote, the hardcore movement conservatives kept party discipline (except for three Senate votes) by threatening to run opposition candidates against anyone who broke ranks. They were able to enforce this because the conservative message machine is strong in their districts and there is no nationwide progressive message machine operating in those districts. The effectiveness of the conservative message machine led to Obama making a rare mistake in communication, the mistake of saying out loud in Florida not to think of Rush Limbaugh, thus violating the first rule of framing and giving Rush Limbaugh even greater power.

Biconceptual, partly progressive, Republicans do exist in Congress, and the president is not going to give up on them. But as long as the conservative message machine can activate its values virtually unopposed in conservative districts, movement conservatives can continue to pressure biconceptual Republicans and keep them from voting their conscience on many issues. This is why a nationwide progressive message machine needs to be organized if the president is to achieve unity through biconceptualism.

4. Protection and Empowerment

The fourth idea behind the Obama Code is the President’s understanding of government—“not whether our government is too big or too small, but whether it works.” This depends on what “works” means. The word sounds purely pragmatic, but it is moral in operation.

The idea is that government has twin moral missions: protection and empowerment. Protection includes not just military and police protection, but protections for the environment, consumers, workers, pensioners, disaster victims, and investors.

Empowerment is what his stimulus package is about: it includes education and other forms of infrastructure—roads, bridges, communications, energy supply, the banking system and stock market. The moral mission of government is simple: no one can earn a living in America or live an American life without protection and empowerment by the government. The stimulus package is basically an empowerment package. Taxes are what you pay for living in America, rather than in Congo or Bangladesh. And the more money you make from government protection and empowerment, the more you owe in return. Progressive taxation is a matter of moral accounting. Tax cuts for the middle class mean that the middle class hasn’t been getting as much as it has been contributing to the nation’s productivity for many years.

This view of government meshes with our national ideal of equality. There needs to be moral equality: equal protection and equal empowerment. We all deserve health care protection, retirement protection, worker protection, employment protection, protection of our civil liberties, and investment protection. Protection and empowerment. That’s what “works” means—“whether it helps families find jobs at a decent wage, care they can afford, a retirement that is dignified.”

5. Morality and Economics Fit Together

Crises are times of opportunity. Budgets are moral statements. President Obama has put these ideas together. His economic program is a moral program and conversely. Why the quartet of leading economic issues—education, energy, health, banking? Because they are at the heart of government’s moral mission of protection and empowerment, and correspondingly, they are what is needed to act on empathy, social and personal responsibility, and making the future better. The economic crisis is also an opportunity. It requires him to spend hundreds of billions of dollars on the right things to do.

6. Systemic Causation and Systemic Risk

Conservatives tend to think in terms of direct causation. The overwhelming moral value of individual, not social, responsibility requires that causation be local and direct. For each individual to be entirely responsible for the consequences of his or her actions, those actions must be the direct causes of those consequences. If systemic causation is real, then the most fundamental of conservative moral—and economic—values is fallacious.

Global ecology and global economics are prime examples of systemic causation. Global warming is fundamentally a system phenomenon. That is why the very idea threatens conservative thinking. And the global economic collapse is also systemic in nature. That is at the heart of the death of the conservative principle of the laissez-faire free market, where individual short-term self-interest was supposed to be natural, moral, and the best for everybody. The reality of systemic causation has left conservatism without any real ideas to address global warming and the global economic crisis.

With systemic causation goes systemic risk. The old rational actor model taught in economics and political science ignored systemic risk. Risk was seen as local and governed by direct causation, that is, buy short-term individual decisions. The investment banks acted on their own short-term risk, based on short-term assumptions, for example, that housing prices would continue to rise or that bundles of mortgages once secure for the short term would continue to be “secure” and could be traded as “securities.”

The systemic nature of ecological and economic causation and risk have resulted in the twin disasters of global warming and global economic breakdown. Both must be dealt with on a systematic, global, long-term basis. Regulating risk is global and long-term, and so what are required are world-wide institutions that carry out that regulation in systematic way and that monitor causation and risk systemically, not just locally.

President Obama understands this, though much of the country does not. Part of his challenge will be to formulate policies that carry out these ideas and to communicate these ideas as well as possible to the public.

7. Contested Concepts and Patriotic Language

As President, Barack Obama must speak in patriotic language. But all patriot language in this country is “contested.” Every major patriotic term has a core meaning that we all understand the same way. But that common core meaning is very limited in its application. Most uses of patriotic language are extended from the core on the basis of either conservative or progressive values to produce meanings that are often opposite from each other.

I’ve written a whole book, Whose Freedom?, on the word “freedom” as used by conservatives and progressives. In his second inaugural, George W. Bush used “freedom,” “free,” and “liberty” over and over—first, with its common meaning, then shifting to its conservative meaning: defending “freedom” as including domestic spying, torture and rendition, denial of habeus corpus, invading a country that posed no threat to us, a “free market” based on greed and short-term profits for the wealthy, denying sex education and access to women’s health facilities, denying health care to the poor, and leading to the killing and maiming of innocent civilians in Iraq by the hundreds of thousands, all in the name of “freedom.” It was anything but a progressive’s view of freedom—and anything but the view intended in the Declaration of Independence or the Constitution.

For forty years, from the late 1960’s through 2008, conservatives managed, through their extensive message machine, to reframe much of our political discourse to fit their worldview. President Obama is reclaiming our patriotic language after decades of conservative dominance, to fit what he has correctly seen as the ideals behind the founding of our country.

“Freedom” will no longer mean what George W. Bush meant by it. Guantanamo will be closed, torture outlawed, the market regulated. Obama’s inaugural address was filled with framings of patriotic concepts to fit those ideals. Not just the concept of freedom, but also equality, prosperity, unity, security, interests, challenges, courage, purpose, loyalty, patriotism, virtue, character, and grace. Look at these words in his inaugural address and you will see how Obama has situated their meaning within his view of fundamental American values: empathy, social and well as personal responsibility, improving yourself and your country. We can expect further reclaiming of patriotic language throughout his administration.

All this is what “change” means. In his policy proposals the President is trying to align his administration’s policies with the fundamental values of the Framers of our Constitution. In seeking “bipartisan” support, he is looking beyond political affiliations to those who share those values on particular issues. In his economic policy, he is realigning our economy with the moral missions of government: protection and empowerment for all.

It’s Us, Not Just Him

The president is the best political communicator of our age. He has the bully pulpit. He gets media attention from the press. His website is running a permanent campaign, Organizing for Obama, run by his campaign manager David Plouffe. It seeks issue-by-issue support from his huge mailing list. There are plenty of progressive blogs. MoveOn.org now has over five million members. And yet that is nowhere near enough.

The conservative message machine is huge and still going. There are dozens of conservative think tanks, many with very large communications budgets. The conservative leadership institutes are continuing to turn out thousands of trained conservative spokespeople every year. The conservative apparatus for language creation is still functioning. Conservative talking points are still going out to their network of spokespeople, who still being booked on tv and radio around the country. About 80% of the talking heads on tv are conservatives. Rush Limbaugh and Fox News are as strong as ever. There are now progressive voices on MSNBC, Comedy Central, and Air America, but they are still overwhelmed by Right’s enormous megaphone. Republicans in Congress can count on overwhelming message support in their home districts and homes states. That is one reason why they were able to stonewall on the President’s stimulus package. They had no serious media competition at home pounding out the Obama vision day after day.

Such national, day-by-day media competition is necessary. Democrats need to build it. Democratic think tanks are strong on policy and programs, but weak on values and vision. Without the moral arguments based on the Obama values and vision, the policymakers most likely be unable to regularly address both independent voters and the Limbaugh-FoxNews audiences in conservative Republican strongholds.

The president and his administration cannot build such a communication system, nor can the Democrats in Congress. The DNC does not have the resources. It will be up to supporters of the Obama values, not just supporters on the issues, to put such a system in place. Despite all the organizing strength of Obama supporters, no such organizing effort is now going on. If none is put together, the movement conservatives will face few challenges of fundamental values in their home constituencies and will be able to go on stonewalling with impunity. That will make the president’s vision that much harder to carry out.

Summary

The Obama Code is based on seven deep, insightful, and subtle intellectual moves. What President Obama has been attempting in his speeches is a return to the original frames of the Framers, reconstituting what it means to be an American, to be patriotic, to be a citizen and to share in both the sacrifices and the glories of our country. In seeking “bipartisan” support, he is looking beyond political affiliations to those who share those values on particular issues. In his economic plan, he is attempting to realign our economy with the moral missions of government: protection and empowerment for all.

The president hasn’t fooled the radical ideological conservatives in Congress. They know progressive values when they see them — and they see them in their own colleagues and constituents too often for comfort. The radical conservatives are aware that this economic crisis threatens not only their political support, but the very underpinnings of conservative ideology itself. Nonetheless, their brains have not been changed by facts. Movement conservatives are not fading away. They think their conservative values are the real American values. They still have their message machine and they are going to make the most of it. The ratings for Fox News and Rush Limbaugh are rising. Without a countervailing communications system on the Democratic side, they can create a lot of trouble, not just for the president, not just for the nation, but on a global scale, for the environmental and economic future of the world.

George Lakoff is Goldman Distinguished Professor of Cognitive Science and Linguistics at the University of California at Berkeley. He is the author of The Political Mind and Don’t Think of an Elephant!

Want to better understand the economic crisis that is engulfing the world? Watch this very amusing 11 minute video that very simply and effectively explains why we’re all in the hole we’re in.

The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.

Obama’s stimulus plan is ambitious, but it won’t be enough to get us out of the economic cesspool we’re in. It only addresses one of three areas of concern that absolutely have to be addressed in order for the economy to recover:

1) Nationalize the banks. Heaven forbid Americans should talk about nationalization! But the bottom line is that the major American banks are insolvent, and nobody wants to admit it. They’re carrying trillions of dollars in bad assets on their books, far more than we could ever throw money at through TARP. These banks made huge mistakes, and now they have to pay. If we keep propping up these zombie dead banks we’ll repeat Japan’s mistakes and stagnate for over a decade, because they’ll be in no condition to get credit flowing again. The government must take over these banks, wipe out every last shareholder, make the bondholders the owners of remaining assets, wipe the balance sheet clean, and ultimately re-privatize them. It has been done before, in Sweden in the ’90’s, to great effect. According to economist Nouriel Roubini the re-privatization could take place in as little as six months. We don’t even need to look to Sweden, we did something similar with Indymac recently–the FDIC took it over and recently re-sold it to private investors. Obama is obfuscating when he says we’re not like Sweden because we have thousands of banks–it’s the few huge banks at the top that are having the most trouble. Stop dithering, Obama–and just get it done!

2) Stop the foreclosures. The economy won’t improve until you stanch the bleeding at the source: people being tossed out of their houses by the millions. Obama recently revealed a foreclosure plan that would provide aid to some homeowners, which raised a huge hue and cry that financially responsible people will be subsidizing the houses of people who took out more mortgage than they could afford. It’s a fair argument–but let’s save the moral hazard arguments for BEFORE the crisis occurs, not DURING it when the rest of us are being shellacked in the stock market and elsewhere because of others’ bad housing choices. But there’s a better way to do this than just giving out money to homeowners: make them declare bankruptcy, and give bankruptcy judges the power to modify existing mortgages down to current market value rather than the ridiculous prices of a couple of years ago–thus letting people stay in their more affordable homes. So instead of people subsidizing others through taxes, they’ll subsidize them through house equity–because if your neighbor’s $450,000 house value just got knocked down by a judge to $100,000 and is later sold at that price, guess what your house is going to be worth. People and the banks can scream and shout and throw tantrums about these adjustments, but the bottom line is that houses were never worth the outrageous prices, and the quicker we bring them in line with their true value the sooner the economy will recover. Painful medicine, folks…

3) Stimulus. Only after these steps are taken can the stimulus plan really work and let the economy gain traction. It will provide jobs that people can use to stay in homes they can afford, bought with credit available from revitalized banks.

Failure to do this is like trying to do cardiac resuscitation on a dead patient–you may get a blip or two in response to the shock, but the corpse goes right back to its lifeless state as soon as the stimulus ends. That’s what’s in store for the economy, and Obama’s presidency, unless he gets it right.

I still have faith that he can.

Steven Pearlstein’s recent searing criticism of ignorant Republicans (and a few Democrats) debating the stimulus bill is so good that it can only be posted in its entirety:

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Wanted: Personal Economic Trainers. Apply at Capitol.

By Steven Pearlstein
Friday, February 6, 2009; D01

As long as we’re about to spend gazillions to stimulate the economy, I’d like to suggest we throw in another $53.5 million for a cause dear to all business journalists: economic literacy. And what better place to start than right here in Washington.

My modest proposal is that lawmakers be authorized to hire personal economic trainers over the coming year to sit by their sides as they fashion the government’s response to the economic crisis and prevent them from uttering the kind of nonsense that has characterized the debate over the stimulus bill during the last two weeks.

At a minimum, we’d be creating jobs for 535 unemployed PhDs. And if we improved government economic policy by a mere 1 percent of the trillions of dollars we’re dealing with, it would pay for itself many times over.

Let’s review some of the more silly arguments about the stimulus bill, starting with the notion that “only” 75 percent of the money can be spent in the next two years, and the rest is therefore “wasted.”

As any economist will tell you, the economy tends to be forward-looking and emotional. So if businesses and households can see immediate benefits from a program while knowing that a bit more stimulus is on the way, they are likely to feel more confident that the recovery will be sustained. That confidence, in turn, will make them more likely to take the risk of buying big-ticket items now and investing in stocks or future ventures.

Moreover, much of the money that can’t be spent right away is for capital improvements such as building and maintaining schools, roads, bridges and sewer systems, or replacing equipment — stuff we’d have to do eventually. So another way to think of this kind of spending is that we’ve simply moved it up to a time, to a point when doing it has important economic benefits and when the price will be less.

Equally specious is the oft-heard complaint that even some of the immediate spending is not stimulative.

“This is not a stimulus plan, it’s a spending plan,” Nebraska’s freshman senator, Mike Johanns (R), said Wednesday in a maiden floor speech full of budget-balancing orthodoxy that would have made Herbert Hoover proud. The stimulus bill, he declared, “won’t create the promised jobs. It won’t activate our economy.”

Johanns was too busy yesterday to explain this radical departure from standard theory and practice. Where does the senator think the $800 billion will go? Down a rabbit hole? Even if the entire sum were to be stolen by federal employees and spent entirely on fast cars, fancy homes, gambling junkets and fancy clothes, it would still be an $800 billion increase in the demand for goods and services — a pretty good working definition for economic stimulus. The only question is whether spending it on other things would create more long-term value, which it almost certainly would.

Meanwhile, Nebraska’s other senator, Ben Nelson (D), was heading up a centrist group that was determined to cut $100 billion from the stimulus bill. Among his targets: $1.1 billion for health-care research into what is cost-effective and what is not. An aide explained that, in the senator’s opinion, there is “some spending that was more stimulative than other kinds of spending.”

Oh really? I’m sure they’d love to have a presentation on that at the next meeting of the American Economic Association. Maybe the senator could use that opportunity to explain why a dollar spent by the government, or government contractor, to hire doctors, statisticians and software programmers is less stimulative than a dollar spent on hiring civil engineers and bulldozer operators and guys waving orange flags to build highways, which is what the senator says he prefers.

And then there is Sen. Tom Coburn (R-Okla.), complaining in Wednesday’s Wall Street Journal that of the 3 million jobs that the stimulus package might create or save, one in five will be government jobs, as if there is something inherently inferior or unsatisfactory about that. (Note to Coburn’s political director: One in five workers in Oklahoma is employed by government.)

In the next day’s Journal, Coburn won additional support for his theory that public-sector employment and output is less worthy than private-sector output from columnist Daniel Henninger. Henninger weighed in with his own list of horror stories from the stimulus bill, including $325 million for trail repair and remediation of abandoned mines on federal lands, $6 billion to reduce the carbon footprint of federal buildings and — get this! — $462 million to equip, construct and repair labs at the Centers for Disease Control and Prevention.

“What is most striking is how much ’stimulus’ money is being spent on the government’s own infrastructure,” wrote Henninger. “This bill isn’t economic stimulus. It’s self-stimulus.”

Actually, what’s striking is that supposedly intelligent people are horrified at the thought that, during a deep recession, government might try to help the economy by buying up-to-date equipment for the people who protect us from epidemics and infectious diseases, by hiring people to repair environmental damage on federal lands and by contracting with private companies to make federal buildings more energy-efficient.

What really irks so many Republicans, of course, is that all the stimulus money isn’t being used to cut individual and business taxes, their cure-all for economic ailments, even though all the credible evidence is that tax cuts are only about half as stimulative as direct government spending.

Many, including John McCain, lined up this week to support a proposal to make the sales tax and interest payments on any new car purchased over the next two years tax-deductible, along with a $15,000 tax credit on a home purchase. These tax credits make for great sound-bites and are music to the ears of politically active car salesmen and real estate brokers. Most economists, however, have warned that such credits will have limited impact at a time when house prices are still falling sharply and consumers are worried about their jobs and their shrinking retirement accounts. Even worse, they wind up wasting a lot of money because they give windfalls to millions of people who would have bought cars and houses anyway.

What adds insults to injury, however, is that many of the senators who supported these tax breaks then turned around and opposed as “boondoggles” much more cost-effective proposals to stimulate auto and housing sales, such as having the government replace its current fleet of cars with hybrids or giving money to local housing authorities to buy up foreclosed properties for use as low-income rental housing.

Personal economic trainers would confirm all this. Until they’re on board, however, here’s a little crib sheet on stimulus economics:

Spending is stimulus, no matter what it’s for and who does it. The best spending is that which creates jobs and economic activity now, has big payoffs later and disappears from future budgets.

Crooks & Liars rather deridingly posts that now everyone is an economist, posting on previously inscrutable topics like “mortgage-backed securities” and “credit default swaps.”

I don’t think that’s a bad thing at all. I think it’s GREAT.

There has been a poison spreading secretly in our economy for years, false growth fueled by speculation and over-leveraging of debt. It seeped into every facet of daily life without most people’s knowledge–real estate values, stock prices, commodities, credit cards, and so on. It was all financed by foreigners eager to lend cheap money to Americans and let them continue to spend beyond their means. Americans congratulated themselves on selling ever-more-expensive houses to each other and calling it economic progress.

It was all a farce, but that wasn’t immediately apparent. Most people saw “good times” (or at least “not bad times”) and were complacent. Who cared what was going on on Wall Street as long as house and stock prices kept going up? We turned to other, more interesting (or banal) topics–from politics to American Idol and runway models.

There were people ringing the alarm bells, distinguished economists like Nouriel Roubini–but they were laughed at, dismissed as “economic Eeyores.” Nobody listened until it was too late.

Now the crisis is upon us, and people are waking up! They’re hungry for knowledge, trying to understand why their society and way of life threatens to crash down around everyone’s ears. How could the United States of America possibly witness a situation where the Treasury Secretary goes into an emergency meeting with ashen-faced Members of Congress to inform them that if they don’t pass a bailout bill there “may not be an economy on Monday“?!

Several friends have phoned or contacted me, asking me to explain what’s happening in a way a non-economist can understand. I’m no economist, but I’ve learned a lot about economics over the last few years as I read with ever-increasing alarm about what I thought to be a ticking time bomb. That reading is what led me to sell my condo in 2006 as the housing crash was just beginning.

I basically say this to my friends who have asked: an economy cannot run without trust–whether it be trust in what a dollar is worth, or trust that individuals and institutions will repay their obligations. Banks and Wall Street loaded up on mortgage instruments that they thought were good, but in fact were not. Now, nobody knows what’s good and bad out there, or who has what. Banks are looking at each other and saying “I don’t trust you to be solvent a day or a week from now because of those mortgages you might have, and will therefore not lend to you.” That brings the economy to a screeching halt, as credit (which is lending, after all) dries up. The bailout plan tries to restore trust by removing the mortage instruments clogging up the works, in the hopes that institutions will trust each other enough to lend once again.

That’s really all there is to it, and I’m happy to explain it to anyone who will listen at any level of detail they desire. It’s time that everyone knows the chicanery that has been going on, the wool that has been pulled over everyone’s eyes, the deceit of unfettered de-regulation under the guise of a false posterity.

We’re all in this together, and the more people who know and understand the truth the better.

Time has an interesting article on why people don’t support the bailout. Apart from being viewed as a bailout to rich people and corporations who don’t deserve it (which is true), it’s also that people do not specifically understand the risks associated with failure to act.

It’s like climate change–the risks are too amorphous, fuzzy, not in the here and now. Given the complexity of the situation, most Americans without a sophisticated background in economics simply cannot fathom how not acting could profoundly change American life for the worse. Our leaders have talked a lot of gloom and doom, but have done so in a vague and non-specific manner so as to avoid a widespread financial panic that would make things much worse. But the consequences are that Americans don’t really understand what they’re getting into.

So here’s my attempt to make concrete some of the consequences of failing to do anything (I’m not necessarily advocating the current package, just saying what happens if we do nothing). These are worst-case scenarios that may or may not come to pass, but Americans need to know about the possibilities.

1) You might wake up one morning and the money in your bank might be gone (likelihood: low). This is the Armageddon possibility. While it’s true that FDIC insures deposits up to $100,000, there are finite limits to the funds available. If the current crisis causes a string of banks to fail simultaneously, especially some of the biggest ones, it’s possible that the number of failures might overcome the amount of money available through FDIC. Congress would probably step in with an emergency infusion, but might it be enough to safeguard everyone 100%? Who knows–it depends on the severity of the crisis. This happened once, and was in fact one of the triggers of the Great Depression–which is why FDIC was founded in the first place.

2) Stock market crash, ruination of people’s 401k retirements (likelihood: high). The Dow Jones fell 90% from peak to trough during the Great Depression, and took decades to recover. Anyone with stock wealth would be financially ruined. You’ve been warned.

3) Inability to buy or sell a house, causing a much worse crash in housing prices (likelihood: high). The failure of the credit markets means it is much harder (perhaps eventually impossible) to get a mortgage. Since most people can’t pay for a house in cash given current prices, prices would have to fall and fall until either mortgages become widely available again, or until they fall to the point where people can in fact buy them with whatever cash they have. While renters (including myself) might rejoice at such a possibility, the truth is that the majority of American wealth and retirement security is locked up in their houses and such a deflation would be financially disastrous to millions.

4) Inability to get loans for college, buy a car, start a new business, etc. (likelihood: high). Again, with credit markets malfunctioning people will find it difficult or impossible to get necessary loans for life’s ordinary needs.

5) Mass bankruptcies of American businesses (likelihood: medium). Companies don’t keep spare cash for short term needs in some big massive steel vault. They invest it. If they need cash for those short term needs they also don’t pull the money out of some vault–they borrow it. Choking off credit means companies can’t borrow to meet their short-term needs such as buying inventory–or making payroll. Companies who cannot meet their obligations are insolvent, and bankruptcy is a possibility if they can’t afford or can’t get longer term loans to meet those needs. Even if they don’t go bankrupt, they would have to seriously curtail their expenses–including payroll. (see below)

6) Mass unemployment (likelihood: medium to high). Don’t believe today’s unemployment figures, they’re totally bogus. The government doesn’t include people who’ve despaired to the point they are no longer looking for work, or even people no longer collecting unemployment. So unemployment today is already higher than the 6.5% or so that is claimed. Unemployment reached nearly 25% during the Great Depression, as companies went out of business or had to severely restrain costs. Despite the sunny forecasts from people who a year ago were saying the crisis was "contained" (cough::cough), much higher unemployment is entirely possible.

7) Cities go bankrupt (likelihood: medium to high). Cities with plunging tax revenues from unemployed people, and unable to borrow money, will quickly go bankrupt. Thousands of cities went belly up during the Great Depression. City bankruptcies mean the disruption of many services from schools to police forces. Crime will increase and urban decay will spread rapidly. Civil disorder is a real possibility.

8. Hyperinflation (likelihood: medium). The American government can’t really go bankrupt (although it’s credit rating could be severely impacted)–they can just print more money. But printing more money to address the magnitude of the crisis might lead to inflation or hyper-inflation as everyone is chasing a higher number of dollar bills. Prices on everything could skyrocket almost overnight, severely eroding the value of whatever money people have figuratively stashed under their mattresses. Think it can’t happen? Imagine how it would be like if we suffered the same inflation rate being endured by Zimbabwe, which saw a yearly increase of 66,000%. (That is not a typo).

9) We grow it/make it, they use it (likelihood: medium): One nasty side effect of #8 if it occurs is that printing money devalues the currency (more dollars floating around mean each individual one is worth less)–meaning America will put up a big garage sale sign for foreigners with much stronger currencies like the Euro, who can then swoop in and buy up entire swaths of Americana (buildings, factories, commodities, food, etc.). Think this doesn’t impact you? Consider a hypothetical example where a global drought makes wheat scarce (as happened earlier this year). The US grows much of the world’s wheat, but because the dollar has become so weak, foreigners could outbid us on the open market for our own wheat! We grow it and then grow hungry as the wheat is shipped overseas to feed other people.

10) Deflation (likelihood: medium). The opposite of inflation, deflation is when an economy enters a vicious cycle where people believe that stuff will cost less tomorrow than today, so they put off buying–which causes prices to fall, repeating the cycle over again. Some economists think we’ll have deflation instead of inflation. So basically, everything you own will become pretty worthless, more companies go out of business as they become unable to earn any profits, and wages spiral downwards.

So there you have it: ten nasty things that could happen if we do nothing about the economic crisis. People who oppose "bailouts" in any form should carefully consider these consequences as they make their decisions.

With the emergency economic bailout plan going down in flames in Congress, and with financial institutions continuing to fail at an alarming rate (Wachovia being sold for $1 a share to Citigroup today)–I genuinely fear for the future of our nation. That’s not because I thought the plan was particularly good–I agree with Boehner that it was a "crap sandwich"–but because something profound must be done immediately. Perhaps it’s for the best, because the plan failed to address the number one problem causing the meltdown: the rapidly escalating foreclosures sweeping the country. Until something is done about this root cause, our economy will continue to slide into the toilet.

As Congress dithers, the rivers of credit that form the lifeblood of our economy have ground to a halt. People can’t get mortgages, they can’t sell their houses, they can’t get car loans, they can’t get student loans, they can’t borrow short-term money to fund business needs. Every day that passes under these conditions is another day that hammers towards the destruction of the American economy.

We need a plan and we need it now–but one that stops the foreclosure bleeding and thus stopping the crisis at its source. It’s slow, it’s enormously expensive to administer. But if it’s a choice between buying toxic mortgages of unknown worth from failing banks for $700 billion, and helping homeowners by freezing foreclosures and re-setting their mortgages so they can stay in their houses, I’ll take the latter any day. The fewer owners who default, the fewer overall losses ultimately experienced by the financial system.

Meanwhile–Dow down 720 points and counting.

I don’t think people truly appreciate the magnitude of the painful recession or depression that could result from this crisis. Nobody of recent generations remember the hunger, the 23% unemployment, the slicing of economic output by half, that this nation experienced in the 1930’s. We are not prepared as a nation or as individuals to deal with that.

While I generally agree that it is the anti-regulatory environment pushed by Republicans for the last decade that is primarily responsible for the current crisis, there is one area where that is not the case: Freddie Mac and Fannie Mae.

Democrats, led by Barney Frank and Chuck Schumer, have consistently shielded these entities from further regulation under the argument that their business model encouraged homeownership for lower and middle income families. They did so despite being warned that the over-leveraging these companies engaged in posed precisely the systemic risk we are now seeing come to pass. Meanwhile, Bush and the GOP tried and failed to push for greater oversight (one of the few things over which I’ve agreed with them the last few years).

While this unflattering video is from Fox News, I consider the reporting accurate:

Gotta call a spade a spade.

I’m seething.

Democrats are proposing common sense additions to the mega-bailout being asked for under threat of Armageddon according to Paulson. They’re asking that executive compensation be limited (I believe to $400,000 if I remember correctly) for banks participating in the bailout, and that taxpayers be given the opportunity to purchase ownership shares in companies participating through the use of “warrants”:

Several lawmakers, including Sen. Jack Reed (D-R.I.), an influential member of the Banking Committee, are pushing for a provision that would require participating firms to grant the government warrants to purchase stock.

Sources familiar with the Treasury’s thinking said warrants would limit participation in the program. Only failing banks would be willing to give the government stock in exchange for buying up their bad assets, these sources said. But key Democrats said the point was critical.

“If this is an investment, the taxpayer should not be treated as dumb money,” said Rep. Rahm Emanuel (D-Ill.), chairman of the House Democratic Caucus. “If we’re going to buy these securities that are illiquid, toxic, we need to make sure taxpayers get an equity ride so they get to benefit on the upside.”

Another point of dispute is Democrats’ insistence that the government be given authority to cut the salaries of executives and restrict their severance packages if they take taxpayer money. Paulson has said such a move would be “punitive” and deter companies from participating in the bailout.

Here’s a message for Paulson, in language not often seen on this blog:

GO F*CK YOURSELF.

You’re trying to sell this sack of garbage to Congress and the American public while using a Sword of Damocles over our heads preaching imminent doom, and you have the unmitigated gall to say to our faces that banks might be “deterred” from participating because we insist on an equity stake and executive pay equivalent to that received by the President in order to benefit from taxpayers’ largesse?

Why don’t these banks and their executives take their business, their stock, their toxic mortgage products, their hedge funds, their six digit bonuses, and their fancy yachts and SHOVE them?

Any banks refusing to accede to these conditions make clear that they didn’t really need the bailout to save anything except their own lifestyles and the status quo. And that, my friends, is not worth my taxpayer money.

Democrats, don’t you DARE cave in on these conditions or you will suffer the consequences at the polls in just a few weeks.

One Trillion Dollars. That’s how much the government’s plan to fix the financial crisis is going to cost.

One Trillion Dollars. An unimaginably large sum of money very roughly equivalent to the real cost of the Iraq war. One that is not news, as I said recently. I’m glad the government is being up front about the cost, but it doesn’t have a choice. Actually I think $1 trillion is understating the case, as I think that’s the cost for Fannie and Freddie alone.

Here’s what we could have bought for One Trillion Dollars (and could have bought twice, if you include the Iraq War):

–Doubling of cancer research funding, treatment for every American with heart disease or diabetes, and a global immunization campaign for children–combined, for two decades.

–Giving every man, woman and child in America $3400, or sending $150 to every single person on the planet.

–Five years’ worth of investment towards complete energy independence, along with associated new job creation and other benefits.

–Taking huge steps towards solving the impending insolvency of social security.

–Funding two hundred aircraft super-carriers for the US Navy.

–Securing loose nukes and fissile materials, and securing our ports, so as to prevent terrorists from ever exploding a nuclear weapon in an American city (cost: merely $315 billion over 10 years.)

–Funding the equivalent of 170 National Science Foundations and 200 National Cancer Institutes for one year. Alternatively, funding 28 Departments of Homeland Security and all the work they do securing the nation, for a year.

–Benedictine nun Joan Chittister’s view:

“you could buy a $100,000 house for every family in Kansas, Missouri, Nebraska, Oklahoma and Iowa and you could put a $10,000 car in the garage of every one of those homes. Then there would be enough money left to build 250 $10 million libraries and 250 $10 million hospitals for every city in those states. And after that, there would still be enough money left over to put in the bank and, from the interest alone, pay 10,000 nurses and 10,000 teachers and still give a $5,000 bonus to ever family in those five states. That’s what one trillion dollars will buy in this country today.”

One Trillion Dollars: the price for a failed conservative Republican ideology that pushed the phony ideas that markets are 100% efficient, that they function best completely unfettered by regulation, that government was nothing but a hindrance. Scads of laws, rules and regulations have been modified or repealed in pursuit of this ideology over the last decade.

I’ve never been a fan of excessive regulation, preferring the market to usually sort things out for itself. But in cases where failing to tell the truth, failing to disclose all facts, or failing to do something materially harms the consumer’s health or pocketbook then the government has a duty to step in and enforce truth and honest dealing. The market, left unfettered in these situations, will simply reward selfishness and people lying to one another.

This entire debacle happened in the absence of sensible regulation because of a failure of all parties to tell the truth. Everyone lied: banks lied to customers about their creditworthiness; customers lied to banks about their income and ability to support payments; banks lied to mortgage-buying financial institutions about the quality of what they were selling; financial institutions lied to the SEC and to investors by hiding financial toxic waste through accounting chicanery that allowed them to both mislead and operate their businesses with grossly undercapitalized debt.

One Trillion Dollars is the price the rest of us will now pay for all this lying, enabled by by the rabid and irrational deconstruction of common-sense “tell the truth” regulation pushed primarily by Republicans and George Bush.

One Trillion Dollars that will never be used to capitalize growth, or create new industries, or finance research for medical cures–those benefits will now be left to other countries.

One trillion dollars (and another trillion for Iraq): the price of Empire run amok. The bill is coming due.

Think about that, and about who is responsible, before voting in November.