EDITOR’S COMMENT: If world class economists are “getting it” and trained economic and securities analysts are getting it why can’t the policy makers get it? Suddenly we don’t know what we have always known: that joblessness will drag the economy down. Although Krugman understates the jobless numbers to be perceived as credible, the numbers are staggering even if we use conventional government data. It would not be an understatement to say that more than 30 million people are either out of work, underemployed, want to work but can’t, and the malaise gets worse every time another person just gives up. That means about 10% of the entire population of this nation wants to work but can’t.
They can’t work largely because of two things — either they lack the training necessary to perform the work that employers needs done or they are blocked from working or moving to a job because of the illusion of mortgage debt that does not actually exist and is not really a lien against their property. In turn employers shoot themselves in the foot by using FICO scores to choose employees. The banks created the illusion of credit defaults and delinquencies. It does not really exist on the scale declared by the banks and reported by the government and the media. But we treat it as real and it becomes real for every worker who is otherwise well qualified for a job but turned down because of the dark FICO score left on his/her record by the banks who pushed all sorts of unworkable debt on consumers in lieu of applying our economic resources to real commerce, training and innovation.
Krugman’s frustration is understandable. The truth is plain to see and the solution is just as obvious, but the banks, using billions of dollars of OUR money are using that money against us and our neighbors, bringing down the the economic vitality of the nation. Except for those in high management at the banks, there is not one person who is not negatively affected by this cycle, even if they don’t realize it. What we need is simple to state: unity in the face of all these successful tactics to divide us. I intend to do something about that — stay tuned.
This is not about personal responsibility. It is about a moral imperative in our society to make things right. The plain truth is whether you look at mortgage debt based upon ridiculous appraisals of property values and intentional misstatements of the ability to or willingness to pay, or you look at credit card debt with interest rates that for centuries were known to be impossible to pay and therefore criminalized until the banks got involved in legislation, or you look at the cost of education and the added cost of financing it through a filter of banks that got involved solely for the purpose of increasing the cost of education, we are pursuing untenable policies.
We all know that this house of cards can’t stand on its own, that it is breaking apart at the seams, and that we are being targeted by divisive rhetoric intended to keep us fighting with each other instead of reclaiming a rich national heritage of opportunity and freedoms. Nearly everything the banks have done in the last 10-15 years was considered illegal or even criminal for decades and even centuries before that. The criminal prosecutions should be brought, based upon sound investigation and the pursuit of truth, but more important, we need to realize that it doesn’t really matter whether the conduct was criminal or not.
What matters is that we are all in a hole that the banks dug for us and there is no way out except to do those things that get us out of the hole. If that hurts or helps the banks should be a secondary consideration. If it helps the homeowners a bit more than appears”acceptable”, so what? Continuation of our policy of allowing the banks to create this alternate reality is pure folly.
Allowing the homeowners and other consumers who are under unworkable debt burdens to work their way out of it is pure common sense that until now has always been applied. Real banks who were not gaming the system have been doing workouts based upon current facts and circumstances for centuries. Yet now we see the policy of workouts being pushed to the side as the banks rush headlong into acquiring the largest real estate investment group in history. Is this what we really want, when the price is our survival as a land of prosperity, opportunity and freedom?
Drop the dogma and use the truth, common sense and apply basic black letter law. The truth is already out — the banks didn’t transfer the mortgages into the “asset-backed” pools. There is no way around that fact. The investors were cheated by lies. Their remedy is against the investment bankers who lied to them.
If it is right for the investors, pension funds etc. to refuse living the lies of the bankers why isn’t it right for the rest of us? If the investors are not interested in getting involved with the falsely created “loans” and mortgage documentation, why should the banks be permitted to step into the shoes of the creditor and pretend to be the lender? If the creditor is saying, as they are in dozens of lawsuits against the investment banks, that the mortgages were no good and they have no interest in a remedy against the homeowners, why are we even pretending that there is any substance to the banks claiming that they have some sort of divine right to collect a debt that arose out of an illegal transaction designed to hurt both of the real parties — the investor and homeowner?
Unemployment is a terrible scourge across much of the Western world. Almost 14 million Americans are jobless, and millions more are stuck with part-time work or jobs that fail to use their skills. Some European countries have it even worse: 21 percent of Spanish workers are unemployed.
Nor is the situation showing rapid improvement. This is a continuing tragedy, and in a rational world bringing an end to this tragedy would be our top economic priority.
Yet a strange thing has happened to policy discussion: on both sides of the Atlantic, a consensus has emerged among movers and shakers that nothing can or should be done about jobs. Instead of a determination to do something about the ongoing suffering and economic waste, one sees a proliferation of excuses for inaction, garbed in the language of wisdom and responsibility.
So someone needs to say the obvious: inventing reasons not to put the unemployed back to work is neither wise nor responsible. It is, instead, a grotesque abdication of responsibility.
What kinds of excuses am I talking about? Well, consider last week’s release of the latest report on the economic outlook by the Organization for Economic Cooperation and Development, or O.E.C.D. The O.E.C.D. is basically an intergovernmental think tank; while it has no direct ability to set policy, what it says reflects the conventional wisdom of Europe’s policy elite.
So what did the O.E.C.D. have to say about high unemployment in its member countries? “The room for macroeconomic policies to address these complex challenges is largely exhausted,” declared the organization’s secretary general, who called on countries instead to “go structural” — that is, to focus on long-run reforms that would have little impact on the current employment situation.
And how do we know that there’s no room for policies to put the unemployed back to work? The secretary general didn’t say — and the report itself never even suggests possible solutions to the employment crisis. All it does is highlight the risks, as it sees them, of any departure from orthodox policy.
But then, who is talking seriously about job creation these days? Not the Republican Party, unless you count its ritual calls for tax cuts and deregulation. Not the Obama administration, which more or less dropped the subject a year and a half ago.
The fact that nobody in power is talking about jobs does not mean, however, that nothing could be done.
Bear in mind that the unemployed aren’t jobless because they don’t want to work, or because they lack the necessary skills. There’s nothing wrong with our workers — remember, just four years ago the unemployment rate was below 5 percent.
The core of our economic problem is, instead, the debt — mainly mortgage debt — that households ran up during the bubble years of the last decade. Now that the bubble has burst, that debt is acting as a persistent drag on the economy, preventing any real recovery in employment. And once you realize that the overhang of private debt is the problem, you realize that there are a number of things that could be done about it.
For example, we could have W.P.A.-type programs putting the unemployed to work doing useful things like repairing roads — which would also, by raising incomes, make it easier for households to pay down debt. We could have a serious program of mortgage modification, reducing the debts of troubled homeowners. We could try to get inflation back up to the 4 percent rate that prevailed during Ronald Reagan’s second term, which would help to reduce the real burden of debt.
So there are policies we could be pursuing to bring unemployment down. These policies would be unorthodox — but so are the economic problems we face. And those who warn about the risks of action must explain why these risks should worry us more than the certainty of continued mass suffering if we do nothing.
In pointing out that we could be doing much more about unemployment, I recognize, of course, the political obstacles to actually pursuing any of the policies that might work. In the United States, in particular, any effort to tackle unemployment will run into a stone wall of Republican opposition. Yet that’s not a reason to stop talking about the issue. In fact, looking back at my own writings over the past year or so, it’s clear that I too have sinned: political realism is all very well, but I have said far too little about what we really should be doing to deal with our most important problem.
As I see it, policy makers are sinking into a condition of learned helplessness on the jobs issue: the more they fail to do anything about the problem, the more they convince themselves that there’s nothing they could do. And those of us who know better should be doing all we can to break that vicious circle.
