Radio commentary, January 22, 2009

In economic news, more bad stuff. On Thursday morning, we learned that housing starts fell by over 15% in December (and these numbers are seasonally adjusted, so don’t blame it on snow) to an all-time low. An all-time low sounds bad enough, but when you reflect that this is a history that goes back almost 50 years, to a time when the U.S. population was more than 40% lower than it is now, setting a fresh low is really an achievement. In fact, in per capita terms, the level of housing starts in December is a third lower than the previous record low, which was set during the bust of 1991. And there’s nothing in this report that suggests we’re anywhere near bottoming. The rate of decline is accelerating, not slowing, and applications for new housing permits fell harder than the number of units started. Usually as the housing market approaches bottom, permits lead the way up, which makes sense, as builders feel the market turning. The gap had been narrowing in recent months, but it widened again in December.

And also on Thursday morning, we learned that first-time claims for unemployment insurance took a sharp rise, matching the highest level for this recession. Compared to the size of the labor force, claims are still well below record levels—only about half as high as in the recessions of the mid-1970s and early 1980s. Paradoxically one reason for this may be that hiring during the 2001–2008 expansion was weaker of any of its ten post-World War II ancestors; fewer people hired means fewer laid off. But that’s not much comfort, given corporate America’s hiring freeze and the steady upward drift of the unemployment rate.

So, bottom line of all this: the housing bust and job market contraction both still have a way to go.

And it’s looking like the Chinese economy may be entering its first real recession since its post-Mao boom began 20 years ago. According to official stats, which are always a little dicey in China, growth in the fourth quarter of last year broke below 7%, very low by Chinese standards. But the slowdown may be more dramatic than that: electricity production in November was off almost 8% from a year earlier, the worst number since China began its boom. And it’s not only China showing signs of sharp slowdown—South Korea’s economy contracted by more than 5% at the end of 2008, quite a big number. And Japan’s economy also looks to be eroding.

This is far from being an American problem now; it’s looking at least like a deep global recession, and quite possibly the crisis of the economic model on which the world has run for the last couple of decades. Before this is all over, we’re likely to see a whole new set of institutional arrangements and ways of thinking. More on that in the coming weeks.

One sign that that kind of renovation in thinking has barely begun is the strong resistance to what may well become inevitable: nationalization of much of the U.S. banking sector. Now gaining traction is the idea of creating a so-called bad bank, or Aggregator (which sounds like something that should be headed by Arnold Schwarzenegger), which would collect all the bad loans that banks are currently holding, leaving them with only the good stuff. The new chair of Citigroup, Richard Parsons—a pal of Obama’s, and probably someone who got his new job on the urging of the new administration, given the failures of the previous chair—explicitly endorses the bad bank idea as an alternative to nationalization. This sounds like what the Brits used to call “lemon socialism”—nationalize the failing firms in dying industries and leave the thriving stuff to the private sector. The hell with that, I say. Let’s nationalize the banks and transform them into public servants.

Here’s the way not to do it: days before the Bank of America’s acquisition of Merrill Lynch closed, Merrill passed out $3–4 billion in bonuses to its top execs. Now B of A is coming back for a second helping of federal cash. Oh, and former Merrill chair John Thain just quit, shortly after it was revealed (by Charles Gasparino in The Daily Beast) that he spent $1.2 million redecorating his office less than a year ago. The likely new Treasury Secretary, Tim Geithner, promises an overhaul of the TARP bailout. Not a moment too soon, though you do have to wonder what the anything-but-nationalization crowd has in mind.

Speaking of the new administration, I was profoundly annoyed by all the facile comparisons of Barack Obama to Martin Luther King that have been floating around in recent days. You’d think that electing a black president solved all our racial problems! You’d almost conclude, from all the vigorous back self-patting, that the whole reason we had slavery and Jim Crow was just to transcend them someday, thereby proving our innate goodness.

I think I’ll use the words of Obama and King themselves to refute the comparison. First, some excerpts from Obama’s inaugural address:

[Obama audio]

“Our nation is at war against a far-reaching network of violence and hatred…. On this day, we come to proclaim an end to the petty grievances and false promises, the recriminations and worn-out dogmas that for far too long have strangled our politics…. For us, they fought and died in places Concord and Gettysburg; Normandy and Khe Sahn…. Nor is the question before us whether the market is a force for good or ill. Its power to generate wealth and expand freedom is unmatched…. We will not apologize for our way of life nor will we waver in its defense. And for those who seek to advance their aims by inducing terror and slaughtering innocents, we say to you now that, ‘Our spirit is stronger and cannot be broken. You cannot outlast us, and we will defeat you.’ … [t]he selflessness of workers who would rather cut their hours than see a friend lose their job which sees us through our darkest hours…. As we consider the road that unfolds before us, we remember with humble gratitude those brave Americans who, at this very hour, patrol far-off deserts and distant mountains. They have something to tell us, just as the fallen heroes who lie in Arlington whisper through the ages. We honor them not only because they are guardians of our liberty, but because they embody the spirit of service: a willingness to find meaning in something greater than themselves.”

There, in 216 words, we hear someone still in the grip of orthodoxy: subscribing to the master narrative of a war on terror, evoking some fanciful post-partisan world where interests and preferences aren’t in conflict, equating the Vietnam War to the struggles against the Confederacy and Nazi Germany, channelling Milton Friedman on the freedom-promoting powers of The Market, placing the burden of job preservation on self-sacrificing workers, echoing George Bush on our way of life, and reproducing the central message of the McCain campaign on the military as our highest calling.

Contrast that with this excerpt from King’s April 1967 speech against the Vietnam War delivered at Riverside Church, a year to the day before his assassination:

[King audio]

“We must rapidly begin the shift from a thing-oriented society to a person-oriented society. When machines and computers, profit motives and property rights, are considered more important than people, the giant triplets of racism, extreme materialism, and militarism are incapable of being conquered…. True compassion is more than flinging a coin to a beggar. It comes to see that an edifice which produces beggars needs restructuring….. This business of burning human beings with napalm, of filling our nation’s homes with orphans and widows, of injecting poisonous drugs of hate into the veins of peoples normally humane, of sending men home from dark and bloody battlefields physically handicapped and psychologically deranged, cannot be reconciled with wisdom, justice, and love. A nation that continues year after year to spend more money on military defense than on programs of social uplift is approaching spiritual death.”

I’m afraid that’s too generous. We’re no longer approaching spiritual death; we’re on our spiritual deathbed.

4 Comments on “Radio commentary, January 22, 2009

  1. It’s disappointing — yes, disappointing, not merely predictable — how few leftoids and other critical types failed to note the chasm between the rhetoric/substance of King and Obama the day after MLK Jr Day. No comment needed, really, just roll the audio. Great job.

  2. Mr. Henwood,

    Great to see you blogging this commentary. ‘Bout time. And the new layout/format/color scheme is very very good.

    Maybe you’ll drag the LBO-talk list up to a higher level of technology soon too?

    But sheesh you must be plenty busy otherwise.

    Thanks very much again.

  3. Great blog, really appreciate the rapid analysis considering the pace at which financial/economic change is occurring. Now hanging out for some commentary of Obama’s new bailout/regulatory plan.

  4. Great insight. One thing I like to touch on is BofA, the waste and sloth coming from that institution has been publicly scrutinized for awhile, I wrote an article about them, and Ken Lewis last summer. What gets me, is how they (BofA) can manipulate the handouts without restrictions.

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