Why the Economy Crashed, and Why It’s Still Crashing

What’s in a graph?

Source: http://modeledbehavior.com

This graph helps explain the boom that led to the bust of 2008.

The thing to understand is that middle class and worker wages — the primary source of the aggregate demand fueling the American economy — went flat in the late 1970s and stayed that way while wealth-producing worker productivity continued to rise. This was the first time in over one hundred years that wages failed to track increased productivity. Where did that wealth go, if not to middle-class wage-earners? The chart is an indication of a massive shift of wealth from the poor and middle class to the top 1%.

Keep in mind, as Paul Krugman has pointed out repeatedly, that there was nothing economically imperative about this growing income inequality. It was rather a result of policies put in place during and after the so-called “Reagan Revolution.”

So, if consumers after the late 1970s were now less able to consume, where did we find the demand to keep the economy afloat? The top 1% tend to hoard, not spend, contrary to the conservative folklore about this being the wealth-producing class. How to get money back into the hands of the middle-class, the indebted involuntary consumers?

Answer: More debt, especially home mortgage and stock equity debt, a debt bubble, leading inevitably to bust.

The first big bubble following the flattening of worker wages was in stocks, and it finally burst in the “dot com” bust of the nineties.

The next big bubble — because now we always needed some bubble to keep us afloat — was in mortgages and the structured financial instruments built on them. We’re still living in the midst of the burst of the 2008 bubble.

One of the more frightening aspects of our current situation is the fact that, despite the efforts to bail-out the financial sector, nothing has been done to clear the garbage subprime-based loans from the books. The banks are all still pretending that the mortgages have full value, even as the real estate market itself is slowly “crashing” beneath them.

The following is an incredible chart. It shows that banks are holding on to their foreclosed homes as if they were full-valued assets, instead of actually putting them on the market and being forced to revalue them.

Source: Naked Capitalism (http://www.nakedcapitalism.com)

This is our view from inside the ongoing burst of the 2008 bubble.

Stay tuned.

Tomgram: Bill McKibben, A Wilted Senate on a Heating Planet

Originally published in TomDispatch.com (Reprinted with permission)

Where are they now?  Last winter, when record snowstorms brought life in the northeast corridor to a halt, Virginia Republicans launched a web ad, “12 inches of global warming,” and the family of Oklahoma senator and global warming “skeptic” Jim Inhofe built an igloo on the national mall, labeling it “Al Gore’s new home.”  Now, as Xtreme weather has been setting new records for pure swelter along that same corridor (and pure drench in the Midwest), who’s building a sweat lodge on the Mall labeled “Jim Inhofe’s new home”?  Where are the mocking Democratic web ads?  Has the president said a word?  In fact, amid temperatures that hit 105 degrees and above in the East, has anyone said a word?  Do you realize just how rare are the stories in major papers or on the TV news that even suggest heavily covered weird weather in our nation and elsewhere could in any way be linked to global warming in a year that may break world warmth records?

Sweltering New York — 103 in the shade and getting hotter, it seemed — with its aging power infrastructure teetering at the edge of serial blackout, was the drumroll for the start of my 66th year on this planet.  Now, at a moment when you can hardly check out the news and not notice a weather anomaly that looks curiously like the new norm — heat of a sort Moscow has never seen, drenching monsoon rains and floods, killing more than a thousand people, that are a singular first in Pakistan — the mainstream media has largely left global warming in a ditch somewhere, especially when it comes to weather reporting.  Writers at Scientific American may think that global warming is, by now, “undeniable,” but the U.S. Senate, undoubtedly aware not only of the temperature outside but of the degree of American media (and public) denial about it, has reached other conclusions entirely.

Bill McKibben, TomDispatch regular and author of the invaluable new book, Eaarth: Making a Life on a Tough New Planet, assesses our national moment in the heat and just how wilted we’ve seemed to be.  (And while you’re at it, catch him in Timothy MacBain’s latest TomCast audio interview discussing why the public needs to lead the fight against global warming by clicking here or, to download it to your iPod, here.)  Tom Engelhardt

We’re Hot as Hell and We’re Not Going to Take It Any More
Three Steps to Establish a Politics of Global Warming

By Bill McKibben

Try to fit these facts together:

According to the National Oceanic and Atmospheric Administration, the planet has just come through the warmest decade, the warmest 12 months, the warmest six months, and the warmest April, May, and June on record.

* A “staggering” new study from Canadian researchers has shown that warmer seawater has reduced phytoplankton, the base of the marine food chain, by 40% since 1950.

Nine nations have so far set their all-time temperature records in 2010, including Russia (111 degrees), Niger (118), Sudan (121), Saudi Arabia and Iraq (126 apiece), and Pakistan, which also set the new all-time Asia record in May: a hair under 130 degrees. I can turn my oven to 130 degrees.

* And then, in late July, the U.S. Senate decided to do exactly nothing about climate change. They didn’t do less than they could have — they did nothing, preserving a perfect two-decade bipartisan record of no action. Senate majority leader Harry Reid decided not even to schedule a vote on legislation that would have capped carbon emissions.

I wrote the first book for a general audience on global warming back in 1989, and I’ve spent the subsequent 21 years working on the issue. I’m a mild-mannered guy, a Methodist Sunday School teacher. Not quick to anger. So what I want to say is: this is fucked up. The time has come to get mad, and then to get busy.

For many years, the lobbying fight for climate legislation on Capitol Hill has been led by a collection of the most corporate and moderate environmental groups, outfits like the Environmental Defense Fund. We owe them a great debt, and not just for their hard work. We owe them a debt because they did everything the way you’re supposed to: they wore nice clothes, lobbied tirelessly, and compromised at every turn.

By the time they were done, they had a bill that only capped carbon emissions from electric utilities (not factories or cars) and was so laden with gifts for industry that if you listened closely you could actually hear the oinking. They bent over backwards like Soviet gymnasts.  Senator John Kerry, the legislator they worked most closely with, issued this rallying cry as the final negotiations began: “We believe we have compromised significantly, and we’re prepared to compromise further.”

And even that was not enough. They were left out to dry by everyone — not just Reid, not just the Republicans. Even President Obama wouldn’t lend a hand, investing not a penny of his political capital in the fight.

The result: total defeat, no moral victories.

Now What?

So now we know what we didn’t before: making nice doesn’t work. It was worth a try, and I’m completely serious when I say I’m grateful they made the effort, but it didn’t even come close to working. So we better try something else.

Step one involves actually talking about global warming.  For years now, the accepted wisdom in the best green circles was: talk about anything else — energy independence, oil security, beating the Chinese to renewable technology. I was at a session convened by the White House early in the Obama administration where some polling guru solemnly explained that “green jobs” polled better than “cutting carbon.”

No, really?  In the end, though, all these focus-group favorites are secondary.  The task at hand is keeping the planet from melting. We need everyone — beginning with the president — to start explaining that basic fact at every turn.

It is the heat, and also the humidity.  Since warm air holds more water than cold, the atmosphere is about 5% moister than it was 40 years ago, which explains the freak downpours that seem to happen someplace on this continent every few days.

It is the carbon — that’s why the seas are turning acid, a point Obama could have made with ease while standing on the shores of the Gulf of Mexico. “It’s bad that it’s black out there,” he might have said, “but even if that oil had made it safely ashore and been burned in our cars, it would still be wrecking the oceans.” Energy independence is nice, but you need a planet to be energy independent on.

Buy The Book

Mysteriously enough, this seems to be a particularly hard point for smart people to grasp. Even in the wake of the disastrous Senate non-vote, the Nature Conservancy’s climate expert told New York Times columnist Tom Friedman, “We have to take climate change out of the atmosphere, bring it down to earth, and show how it matters in people’s everyday lives.” Translation: ordinary average people can’t possibly recognize the real stakes here, so let’s put it in language they can understand, which is about their most immediate interests. It’s both untrue, as I’ll show below, and incredibly patronizing. It is, however, exactly what we’ve been doing for a decade and clearly, It Does Not Work.

Step two, we have to ask for what we actually need, not what we calculate we might possibly be able to get. If we’re going to slow global warming in the very short time available to us, then we don’t actually need an incredibly complicated legislative scheme that gives door prizes to every interested industry and turns the whole operation over to Goldman Sachs to run.  We need a stiff price on carbon, set by the scientific understanding that we can’t still be burning black rocks a couple of decades hence. That undoubtedly means upending the future business plans of Exxon and BP, Peabody Coal and Duke Energy, not to speak of everyone else who’s made a fortune by treating the atmosphere as an open sewer for the byproducts of their main business.

Instead they should pay through the nose for that sewer, and here’s the crucial thing: most of the money raised in the process should be returned directly to American pockets. The monthly check sent to Americans would help fortify us against the rise in energy costs, and we’d still be getting the price signal at the pump to stop driving that SUV and start insulating the house. We also need to make real federal investments in energy research and development, to help drive down the price of alternatives — the Breakthrough Institute points out, quite rightly, that we’re crazy to spend more of our tax dollars on research into new drone aircraft and Mars orbiters than we do on photovoltaics.

Yes, these things are politically hard, but they’re not impossible. A politician who really cared could certainly use, say, the platform offered by the White House to sell a plan that taxed BP and actually gave the money to ordinary Americans. (So far they haven’t even used the platform offered by the White House to reinstall the rooftop solar panels that Jimmy Carter put there in the 1970s and Ronald Reagan took down in his term.)

Asking for what you need doesn’t mean you’ll get all of it.  Compromise still happens. But as David Brower, the greatest environmentalist of the late twentieth century, explained amid the fight to save the Grand Canyon: “We are to hold fast to what we believe is right, fight for it, and find allies and adduce all possible arguments for our cause. If we cannot find enough vigor in us or them to win, then let someone else propose the compromise. We thereupon work hard to coax it our way. We become a nucleus around which the strongest force can build and function.”

Which leads to the third step in this process. If we’re going to get any of this done, we’re going to need a movement, the one thing we haven’t had. For 20 years environmentalists have operated on the notion that we’d get action if we simply had scientists explain to politicians and CEOs that our current ways were ending the Holocene, the current geological epoch. That turns out, quite conclusively, not to work. We need to be able to explain that their current ways will end something they actually care about, i.e. their careers. And since we’ll never have the cash to compete with Exxon, we better work in the currencies we can muster: bodies, spirit, passion.

Movement Time

As Tom Friedman put it in a strong column the day after the Senate punt, the problem was that the public “never got mobilized.” Is it possible to get people out in the streets demanding action about climate change? Last year, with almost no money, our scruffy little outfit, 350.org, managed to organize what Foreign Policy called the “largest ever coordinated global rally of any kind” on any issue — 5,200 demonstrations in 181 countries, 2,000 of them in the U.S.A.

People were rallying not just about climate change, but around a remarkably wonky scientific data point, 350 parts per million carbon dioxide, which NASA’s James Hansen and his colleagues have demonstrated is the most we can have in the atmosphere if we want a planet “similar to the one on which civilization developed and to which life on earth is adapted.” Which, come to think of it, we do. And the “we,” in this case, was not rich white folks. If you look at the 25,000 pictures in our Flickr account, you’ll see that most of them were poor, black, brown, Asian, and young — because that’s what most of the world is. No need for vice-presidents of big conservation groups to patronize them: shrimpers in Louisiana and women in burqas and priests in Orthodox churches and slumdwellers in Mombasa turned out to be completely capable of understanding the threat to the future.

Those demonstrations were just a start (one we should have made long ago). We’re following up in October — on 10-10-10 — with a Global Work Party. All around the country and the world people will be putting up solar panels and digging community gardens and laying out bike paths. Not because we can stop climate change one bike path at a time, but because we need to make a sharp political point to our leaders: we’re getting to work, what about you?

We need to shame them, starting now. And we need everyone working together. This movement is starting to emerge on many fronts. In September, for instance, opponents of mountaintop removal are converging on DC to demand an end to the coal trade. That same month, Tim DeChristopher goes on trial in Salt Lake City for monkey-wrenching oil and gas auctions by submitting phony bids.  (Naomi Klein and Terry Tempest Williams have called for folks to gather at the courthouse.)

The big environmental groups are starting to wake up, too.  The Sierra Club has a dynamic new leader, Mike Brune, who’s working hard with stalwarts like Greenpeace and Friends of the Earth. (Note to enviro groups: working together is fun and useful). Churches are getting involved, as well as mosques and synagogues. Kids are leading the fight, all over the world — they have to live on this planet for another 70 years or so, and they have every right to be pissed off.

But no one will come out to fight for watered down and weak legislation. That’s not how it works. You don’t get a movement unless you take the other two steps I’ve described.

And in any event it won’t work overnight.  We’re not going to get the Senate to act next week, or maybe even next year. It took a decade after the Montgomery bus boycott to get the Voting Rights Act. But if there hadn’t been a movement, then the Voting Rights Act would have passed in… never. We may need to get arrested.  We definitely need art, and music, and disciplined, nonviolent, but very real anger.

Mostly, we need to tell the truth, resolutely and constantly. Fossil fuel is wrecking the one earth we’ve got. It’s not going to go away because we ask politely. If we want a world that works, we’re going to have to raise our voices.

Bill McKibben is founder of 350.org and the author, most recently, of Eaarth: Making a Life on a Tough New Planet. Earlier this year the Boston Globe called him “probably the country’s leading environmentalist” and Time described him as “the planet’s best green journalist.” He’s a scholar in residence at Middlebury College. To hear him discuss why the public needs to lead the fight against global warming in Timothy MacBain’s latest TomCast audio interview, click here or, to download it to your iPod, here.

Copyright 2010 Bill McKibben

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