The Gathering Storm?
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  • Kris

    Judis: “If a real recovery occurs in the next four or five years, it will come about the same way a recovery took place after the 1930s: from a huge infusion of government spending.”

    Which is why the Great Depression was such a short-lived affair compared to the Depression of 1920–21.

    I do apologize if Judis finds my response too “unsavory”.

  • Richard F. Miller

    Professor, I disagree with your assessment of this article’s importance.

    Judis imposes on today’s political configurations his take on what prevailed during the 1930s. One doesn’t have to reach his problematic narrative of the ’30s to discredit his thesis–it’s sufficient to note that the majority of those objecting to Obama-ralysis are most certainly not “laissez faire” who simply advocate letting “markets take their course.” Rather, they are aggressive and farseeing reformers who understand that in early 21st century America, letting markets take their course means the hot pursuit of catastrophe. It means attempting to sustain the unsustainable–and the institutional rot that has produced the current situation.

    What reform really means is dismantling the crony capitalism of the last generation–Republican and Democrat. It means rethinking the entire tax code. It means reviewing the defense commitments of our fathers for both affordability and national interest (e.g., do we really need as large a European footprint as at present?)

    Reform also means reviewing other forms of cronyism that has subsidized an elite that no longer justifies its privileges.

    Exactly why do we subsidize Harvard’s endowment by allowing tax-exempt contributions?

    Tell me again why the public subsidizes tax-exempt foundations that have stretched the definition of public purpose into cozy sinecures and self-reifying grant distributions?

    Why does the federal government send tens of millions to certain “private” research institutions? (No names mentioned here.) Why are spending millions on Title VI while the recipients spit in the eyes of those providing the money? Corporation for Public Broadcasting, anyone?

    And exactly why should it be lawful for public sector unions to contribute money to the political war chests of their employers?

    I could go on, but I think you get the drift. In the current situation, “laissez faire” isn’t a default, it’s revolution (fortunately, peaceful.)

    Coupled with leadership genuinely willing to tell us the truth about the real cost of entitlement reform and the generation-long project of payback, there’s no reason on this earth why 300,000,000 + human beings can’t once again enrich their personal and collective lives.

  • thibaud

    If MEOW = the “moral equivalent of war,” then John Judis’ preferred remedy, the “fiscal equivalent of war” must be FEOW. Whatever, it’s better than Obama’s “WTF.”

    Still, this is off: “If a real recovery occurs in the next four or five years, it will come about the same way a recovery took place after the 1930s: from a huge infusion of government spending.”

    Right diagnosis, wrong medicine. We are facing a crisis of household and government deleveraging, pure and simple.

    During the 1995-2008 spree, US, Spanish-Italian-Irish and probably also Chinese speculators loaded up on artificially cheap credit, and now we need to reduce the unsustainable debt accumulated thereby. The solution to a debt crisis is pretty straightforward, and it’s one that our financial experts, governments, bankers and lawyers know well how to arrange: a workout whereby creditors accept equity stakes in the underwater entity in exchange for a major reduction in the debt obligation.

    And we’ve done these debt-for-equity swaps on a grand scale, TWICE in recent times: first for the massive Latin American debt crisis of the 1980s, and again a few years later with our own S&L crisis. The former workout effort was designed by Bill Rhodes of Citibank, who AFAIK is still around; the latter is even more relevant to our current mess, given the prominence of real estate speculation and government backstops among causes of the S&L mess.

    I know intellectuals want to find Deep Meanings and Epiphenomena whenever there’s a market meltdown, but this is silly. We have to deleverage. This will require government workouts between creditor banks and underwater debtors — both EU governments and US “homeowners” ie the millions of mortgagees who don’t have a prayer, as Mead might put it, of repaying BoA or Chase or Wells Fargo or whoever else is left these days.

    When and if America’s incompetent political class realizes the need to force banks to take a big haircut on their US mortgage portfolios in exchange for equity in the underlying properties – in effect, turning the underwater “homeowners” into what they should have been from the start ie renters – we will infuse money directly into the system on a massive scale in a way that is FAR more effective than umpteen QEs and ARRAs will ever be.

    THe tragedy here is that Ken Rogoff of Harvard (and formerly the IMF) proposed this solution THREE YEARS AGO, and only now are his peers, or should I say lesser economists, both D and R, floating the same idea. By the way, it’s not in the least ideological, or dependent on some grand project for National Greatness or Moral Revival. It’s just g-ddamned common sense and a wilingness to apply financial lessons and tools from recent, similar massive debt crises.

    Can anyone here play this game?

  • WigWag

    John Judis is right; but Mead must not have read the article carefully enough. What Judis is calling for is the “blue” social model on steroids. Judis recommends everything that Mead has been telling us will lead to disaster.

    Of course, Judis has all of this figured out far better than Professor Mead does; Judis recommends a Keynesian prescription for what ails the American economy. What Professor Mead and his lovable Jacksonian horde call for instead is applying leeches to the sick patient in the hope that as the blood flows out the patient will become more robust.

    It is possible that the American political system is just not up to accommodating the type of economic action that will fix the problems we currently face; as a result, it may take a real war to get the public to accept demand-inducing measures that will help mend the economy. If that’s what it will take, the perfect adversary already exists. The Mullahs currently developing nuclear weapons in what we used to call Persia may provide just the ticket we need to economic expansion.

    It would be a terrible price to pay though, when instead, we just could have created a new WPA.

  • thibaud

    [Mr. Wag] – if you’re arguing for new highways, bridges, dams, drilling on public lands and offshore, by all means, let’s go for it. But that’s not what the Stim gave us. Instead of real and serious infrastructure improvements and moves in the direction of energy self-sufficiency, we got three years of fruitless giveaways to public sector employee unions, ie people who were ALREADY well-paid and well-protected.

    Here in California, the first tranche of the $6.7B K-12 education stimulus didn’t even go to the schools. Schwarzenegger diverted $1.9B to the prisons, ie the prison guards, which is the most powerful of CA’s many powerful and greedy state employee unions. Note that I’m not exempting the GOP from my scorn. By and large, their elected officials play the same game the Dems do.

    Could a properly-designed stimulus have worked? Maybe, maybe not. But a stimulus designed and implemented by Congressional hacks and their even more clownish and inept state gov’t equivalents was certain to fail.

  • Stephen P

    Spending per se is neither the problem nor the solution. Bad spending is a long-term problem—counterproductive wars, corrupting bailouts, and payoffs to political supporters. Massive interest payments on our debt hardly count as good spending either. The problem now is that we’re overleveraged, because politicians have failed to address the long-term fiscal implications of massive deficit spending.

  • Kris

    “John Judis is right; but Mead must not have read the article carefully enough.”

    Bad Walter! Why are you allowing, nay encouraging, people to wander out of the echo chamber? How irresponsible of you!

    “It would be a terrible price to pay though, when instead, we just could have created a new WPA.”

    Except that a WPA is manifestly insufficient, as the original one demonstrated. We thus need 2 WPAs. And if that proves insufficient, we just add WPAs, all the way down…

    As to war (Aside: “Create a WPA or invoke the WPA”), I hardly think that waging war on Iran or the entire “Muslim world” will suffice. After all, we need to destroy the industrial capacity of Europe, China, and Japan…

  • cja

    The first four comments were four different opinions, but Richard Miller was spot on. Cronyism is a job killer, but how at this point, can we be cured of it?

  • Travis

    Can someone help me understand where Progressive economists are getting their data showing massive Federal austerity under Hoover proves that stimulus is needed during a recession?

    Fed Spending Under Hoover (year over year change):

    1929: + 166 Million (5% increase)
    1930: + 193 Million (6% increase)
    1931: + 257 Million (8% increase)
    1932: + 1.08 Billion (30% increase)

    His four-year administration oversaw a 57% total increase in Federal spending. That doesn’t seem like austerity to me.

  • Richard F. Miller


    War with Iran as a stimulus measure? You’re stuck in 3G combat in a 4G world.

    The days of buying uniforms, arms and canteens for 8,000,000 riflemen is long gone.

    I think Stuxnet, EMP weapons, low-tech terror, and various wet operations is war’s foreseeable future.

    Not much economic stimulus in that.

  • Jim.

    Well, if it’s war we’re in luck… just about every single ally we’ve ever had would have to turn on us before our military could be overcome.

    @Kris — finally, people are catching on to the fact that 1950’s America was so well positioned to lead the world industrially because pretty much every significant industrial region of the Eastern Hemisphere (except the ones in Siberia) was flattened over the course of the 40’s!

    We do not need a return to 40’s-style Stimulus. Not at the cost of 10% or more of the world’s population. And 30’s-style stimulus just plain didn’t work.

    @WigWag — Judis is profoundly wrong when he asserts that a country whose debt-to-GDP ratio is shooting past the 100% mark by double digits every year can actually use fiscal stimulus as a tactic. The stone has no more blood to give.

    Anyone who believes that a 150%+ indebted United States would remain a “safe haven” for as long as it takes to reduce our debt to a sustainable level (say 60% of GDP, as it was under Bush) is pitifully out of touch with reality.

  • Wig Wag – What up! How you doing? Still keeping WRM honest, I hope. What’s that? Well, Sisyphus didn’t like his job either, but somebody had to do it.

    But, to remain thoroughly contrarian, I must say that the Mullahs aren’t developing nuclear weapons.

    For all you johnny come latelys, I had the name first.

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