“There are those who will say that the economy has forsaken us! Nay! You have forsaken the economy!” preaches the world’s most clueless dad, Randy Marsh, in a classic episode of South Park. With hopes plummeting in early 2009, the cartoon character, garbed in sackcloth, tells Americans they have sinned grievously by overspending and now they must repent or suffer “the economy’s wrath.” As Randy says, “Yea, it is an angry and unforgiving economy.”
The hilarious satire of South Park creators Trey Parker and Matt Stone may be closer to the truth than we are willing to admit. Penitent or not, two years after the recession officially ended in June 2009, many Americans still feel that the economy’s wrath is upon them. It would only make things worse to appease the economy with more austerity, as if it were an ancient, angry god, despite the tempting simplicity of Randy’s explanation. But the economy is something of an unfathomable entity outside of our control, as numerous U.S. presidents have discovered. Efforts to guide it often end up as pathetic and failed attempts at appeasement. And that process just gets harder as business grows more globalized.
President Obama’s plan for recovery was largely based on placating the gods of the markets that he, apparently, didn’t fully understand either. Poorly counseled by chief economic adviser Lawrence Summers and Treasury Secretary Timothy Geithner, Obama gambled that a huge, no-questions-asked bailout of Wall Street would be enough. He resisted almost every structural change to Wall Street in the belief that a swiftly restored financial sector would just as swiftly restore the economy. For the same reason, the administration offered up a timid, Street-friendly plan for confronting banks and mortgage servicers so as to get underwater mortgage holders out of trouble, and it did almost nothing about documentation fraud. Obama so completely saved Wall Street’s bacon in early 2009 that he was stunned, his advisers say, when bankers paid themselves record compensation packages by the end of that awful year—without lending out much of that bacon to others.
Now the results of all this presidential appeasement are in. This week we learned that since the recovery started, banks have done not more but even less lending, reducing it by 4.1 percent in the first 21 months after the Great Recession, The Wall Street Journal reported on July 5, citing data from the Federal Reserve Bank of New York. Money that banks make available through credit lines has dropped from $3.04 trillion to $2.69 trillion, and they have cut home-equity credit lines from $1.33 trillion to $1.15 trillion.
The latest data indicate that the government’s other efforts to appease American business, such as the many goodies from an $800 billion stimulus plan, don’t seem to be working either. Corporate profits are soaring, up 47 percent in the first 21 months of the “recovery,” according to The Journal, and yet total jobs were down 0.4 percent, and unemployment remained stuck above 9 percent through the same period. Those corporate profits are being reinvested, but apparently not enough of them in this country. All in all, economists say, it may be the worst recovery on record.
All of which suggests that the unappeasable entity we should be worrying about is not so much the “economy”—which we used to think was made up mainly of us Americans, some 300 million strong—but American business. Except that “American business” just isn’t anymore—very American, that is. The plot of countless “big-is-bad” Hollywood melodramas has come largely true. The decades-long process by which U.S. companies have become detached from the communities and cities that spawned them is almost complete. Multinational corporations, grown gigantic from decades of mergers and acquisitions, simply use their transnational production networks to shift direction effortlessly, like giant flocks of birds on the wing, into faster-growing economies and away from local tax authorities.
These are all long-term trends, and Washington not only sat back and let them happen but actively encouraged them. A century ago, labor and capital coexisted in something like an equilibrium. Even during the first golden age of globalization before World War I, labor and capital meshed well on a worldwide scale. As free trade supplanted mercantilism in the mid- to late 19th century, migrant laborers followed capital as it flowed abroad. In the last 30 years or so, by contrast, the deregulation of capital markets worldwide and the simultaneous raising of immigration barriers have shifted the balance of power between labor and capital dramatically to the latter. Today, labor must sit and wait in its home markets for globe-hopping capital to come its way.
Hence, so much of what we see: Wall Street, the caretaker of capital, has become superpowerful, the arbiter of corporate performance across the nation and the world. The gap between executive and worker pay has widened to record levels. The American labor movement has become a pitiful shadow of its former self. Yet somehow, Washington still expects that American workers, the heart of the strapped American middle class, will continue to be the world’s economic engine and consumers of last resort. (They did for a while—by taking on enormous debt until the Big Crash.)
Now, having encouraged all of these developments with their policy errors, our politicians are pathetically spinning their wheels over what to do about raising the debt ceiling, an issue that has almost nothing to do with the present ill health of the economy. Meanwhile, our self-created market gods continue to invest vengefully overseas. With his options for stimulus having run out, Obama has little choice but to hope desperately that he can dress up and sell what is no longer his to control—the U.S. economy—going into 2012.
Hollywood had it right after all. Maybe South Park did, too. Washington clearly doesn’t.
This article appears in the July 9, 2011, edition of National Journal.