From Salon’s Andrew Leonard:

There could be no better testament to the historic ineptitude and failure of the Bush administration than that two-thirds of the members of the president’s own party rejected his administration’s plan to deal with the worst financial crisis since the Great Depression.

One way to look at the “stabilization” of these institutions, wrote [Time‘s Justin] Fox, is as the culling of the weak from the herd.

More culling is to come. In the natural world, that wouldn’t be such a bad thing. The herd grows stronger as the weak die off and the strong breed. But the global financial system does not appear to be an exquisitely balanced ecology. It seems much more comparable to a house of cards where you take out one support pillar, and it all comes crashing down.

From Princeton economist Alan Krueger, writing in the New York Times:

this financial crisis is likely to threaten middle- and upper-income jobs to a greater extent than has been the case in past recessions.

Historically, most downturns have hit the least-skilled the hardest, as employers hold on to workers with unique skills who would be expensive to replace. This downturn, however, is likely to be more democratic than the norm because of the severity of the credit crunch. Research indicates that employers hire relatively more skilled workers when they invest in new plant and equipment, especially high-tech information and computing equipment (the so-called “capital-skill complementarity” hypothesis). If funds for investment are not available because of the financial crisis, however, companies will hire fewer skilled workers.

Consistent with this prediction, initial signs indicate that the employment shock has been felt more by college graduates than by those with a high school degree or less.

Some interesting thoughts from across the pond:

Will these [bailouts] and private-sector fixes work? No, because a) they are not system-wide fixes and b) they are based on the same flawed economic policies that spurred this crisis in the first place.

Some of these policies, attributable to Friedrich Hayek and Milton Friedman, are already discredited. Contempt for government is no longer acceptable. …

But there are other orthodox economic policies that remain intact and are as yet unchallenged by any political party. The most damaging is orthodox monetary policy.

Flawed monetary policies are turning a crisis into a catastrophe. They must be challenged. Keynes’s cool, rational voice on monetary theory and monetary policy must once again be heeded. Central banks must once again take control over all rates – short and long, safe and risky.

But a system-wide fix would go further. It would challenge the orthodoxy that unemployment helps keep wages low and is a good thing; and that wage rises are always inflationary. It is this orthodoxy that has caused wages and other forms of compensation to fall as a share of GDP in all OECD countries over the past three decades. This fall in compensation has forced people to supplement incomes by borrowing more.

Creating jobs and raising incomes as a share of GDP is vital if we want people to repay debts, salvage banks and return to the high street.

And a book recommendation:

The Trillion Dollar Meltdown by Charles R. Morris

Now we all hold our breaths to see what happens next…

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2 Responses to “More sobering thoughts”
  1. michael says:

    Well, I’m perversely enjoying the public debate. I never thought I’d see the day when the “orthodoxy” would collapse so vividly and people would start asking genuine questions—ones they don’t already have answers to.

  2. phil from new york says:

    Maybe it’s time to familiarize ourselves with some of the songs of the Great Depression. Here are the lyrics to “Brother Can You Spare Me a Dime” and others:

    (Only today, I guess it would be “Brother Can You Spare Me a Ten-Spot,” or maybe a Twenty?)

    Trying to look for some good news in all this, does this mean we’ll pull out of Iraq quicker? I wish the American people would have been as pissed off about burning billions in a unnecessary war as they are about bailing out rich people on Wall Street.

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