The NYT reported on a study showing that cheap diuretics were more effective than expensive patent protected drugs in combating hypertension. The article reports on the drug industry's efforts to limit the impact of the study.
--Dean Baker
Make sure it is the latest World Bank China Quarterly.
David Dollar, Louis Kuijs and their colleagues have outdone themselves – and in the process provided a clear assessment of the sources of China's current slowdown and the risks that lie ahead. I won't try to summarize the entire report. Read it. The whole thing. No summary can do it justice.
Here though are seven points that jumped out at me.
1. China was no workers' paradise during the boom years.
GDP growth has been quite strong. But wages have fallen from around 50% of China's GDP at the start of the decade to around 40% of GDP. That – not a high rate of household savings – is the main reason why consumption is a very low share of GDP (See Figure 15 of the World Bank Quarterly). If China's workers had secured a bigger share of China's output, they could be better off now even if China had grown somewhat less rapidly. There is good reason to think that a world where China subsidies US borrowing (and consumption) isn't the best of all possible worlds. The fruits of the recent boom weren't shared broadly in either the capital-exporting countries or the capital-importing countries.
2. China really is a manufacturing and investment driven economy.
Even when compared to Korea in 1990 or Japan in 1980, China stands out. Investment accounts for a large share of GDP than it ever did for the smaller Asian miracles and manufacturing accounts for a higher share of China's GDP than it ever did in other Asian manufacturing economies (Figure 14). Given China's size, it is pretty clear that China cannot continue to grow by investing ever more and manufacturing ever more. China ultimately has to produce for Chinese demand not world demand.
3. China's current slowdown was made in China, not in the world.
Yes, growth in "light manufacturing" (toys, shoes and textiles) has slowed. But electronics and machinery exports are still doing very well – even if they don't get the press (Figure 3). Or perhaps I should say were still doing well in the third quarter; must has changed recently. China' problem this year is simple: labor intensive export sectors have slowed more than capital intensive export sectors. Overall though China's real exports grew at a 10-15% y/y clip in 08 – far faster than the overall growth in world imports. China's real export growth is forecast to outpace its real import growth in 2008 – which implies that net exports will still contribute positive to China's GDP growth. True, the net exports won't provide as much of a positive contribution as in 07, 06 or 05. But they are still adding to growth not subtracting from it.
Why then is China slowing so sharply? Simple, real estate investment has hit a wall. After growing at 20% y/y for a long time, real estate investment stalled – with a y/y growth rate of around 0% (Figure 5). That means that China is in turn producing more steel and cement than it needs, and producers of steel and cement are cutting back. That in turns hurts iron ore exporters …
This though is very much a result of China's own policy choices. Rather than allowing the real exchange rate to appreciate back when China was truly booming (05-late 07/ early 08), China's policy makers opted to rely on administrative curbs on credit growth. That left China more exposed to global slump in demand – as it kept exports up by limiting real appreciation even as it credit curbs limited the amount of froth in the real estate market back when China was booming and real interest rates were negative. China invested a lot in real estate, but it is no Dubai. But China's policy makers still look to have slammed the brakes on a bit too hard. Rather than slowing gradually, real estate investment fell off a cliff (Figure 5).
4. There is more bad news ahead.
While real exports contributed positive to GDP growth in 2008, they won't contribute in 09. The World Bank forecasts that for the first time in a long time, 2009 real import growth will exceed real export growth. In 2005, real exports grew about 10% faster than real imports (23.6% v 13.4%). Many economists remain – for reasons that to be honest elude me – reluctant to draw the obvious connection: the most likely explanation for China's strong real export growth is the large depreciation the RMB in 2003 and 2004. That combined with administrative controls – which limited lending, investment and ultimately imports – to create China's large current account surplus. Real export growth exceeded real import growth by 5 percentage points in 2006 and 2007 – and by 4 percentage points in 2008.
The positive contribution of net exports to GDP is forecast to end in 2009: real import growth will exceed real export growth by 3 percentage points.
That though doesn't mean that China's currency isn't undervalued. China's exports are forecast to grow faster than the world's imports, meaning China's global market share is still increasing (see Figure 2). And if 2008 and 2009 are taken together, China will still be drawing on the world for its growth: the drag from net exports in 09 will be smaller than the contribution from net exports in 08 (see Table 1)
I fully realize that China is appreciating quite significantly now in real terms – just global demand for China's goods is falling (Figure 11). The tragedy is that this appreciation is coming now – not two or three years ago when domestic Chinese demand was booming and China didn't need to draw on the rest of the world to sustain strong growth.
5. The fiscal stimulus is real, but modest. China's fiscal balance is expected to swing from a 0.7% of GDP surplus in 07 to a 2.6% of GDP deficit in 09. That is a 3.3% of GDP swing. In 2009 alone, China's deficit is forecast to rise by 2.2% of GDP. See Table 1. That shift is important and will help to support China's growth– but it will likely lag the swing in the US fiscal deficit. Hopes that surplus countries will end doing more than deficit countries seem unlikely to be ratified.
6. The last thing anyone needs to worry about is fall in Chinese demand for US treasuries.
The Treasury market obviously isn't worried - not it 10 year Treasury yields are under 3%. And there is little reason for the bond market to be worried if current trends continue.
The World Bank forecasts that China's current account surplus will RISE not fall in 2009, going from an estimated $385 billion to $425 billion. How is that possible if real imports are forecast to grow faster than real exports? Easy – the terms of trade moved in China's favor. The price of the raw materials China imports will fall faster than the value of China's exports. China's oil and iron bill will fall dramatically.
In macroeconomic terms, China's fiscal stimulus will offset a fall in domestic investment leaving China's current account (i.e. savings) surplus unchanged. The 2009 surplus is expected to be roughly the same share of China's GDP (9%) as the 2008 surplus.
In dollar terms, the World Bank forecasts that China will add almost as much to its reserves in 2009 than in 2008. That is a bit misleading: the 2008 reserve growth number leaves out the funds shifted to the CIC (ballpark, $100b in 08) and the rise in the foreign exchange reserve requirement of the state banks (ballpark, another $100b). But it captures a basis truth. Even if a fall in hot money inflows means that China will be adding $500b rather than $700b to its foreign assets, its foreign assets will still be growing incredibly rapidly. China already has – counting its hidden reserves – well over a $2 trillion. It is now rapidly heading for $3 trillion.
In broad terms – if oil stays at its current levels – China will be the only large surplus country in the world, and it will essentially be financing a US deficit of roughly equal magnitude to China's reserve growth. It makes everything plain to see.
7. The way China manages its reserves matters immensely for the world not just China
China shifted from buying Agencies to buying Treasuries in July. Others did too, but no one has quite the market impact of China. China doesn't disclose what it is doing with its reserves, but the recent shift in Chinese demand isn't really in doubt. The market knows it. The TIC data for August showed it. And the latest Fed data strongly suggest large ongoing migration from Agencies to Treasuries.
China now accounts for such a large share of the world's reserves that it is hard to see how the FRBNY's custodial data doesn't reflect, at least in part, a shift in Chinese demand.
A key themes of this blog has been how the internal imbalances of China's economy are a reflection of its undervalued exchange rate – and that China's surplus has implications for the world. It has to be balanced by large deficits elsewhere. Another key theme has been that the Fed has been pushed to absorb risks that other central bank reserve managers now shun. Nothing illustrates this more clearly than the Agencies. Foreign central banks are scaling back their Agency holdings. The Fed is gearing up to buy. Big Time.
One last note: I am taking a few days off for Thanksgiving – I'll be posting again next week.
Some economic indicators in China showed a "faster decline" in November, the nation's top economic planner said, underlining the urgency of government measures to support growth and employment.
"Some economic indicators weakened further in November, showing a faster decline," Zhang Ping, chairman of the National Development and Reform Commission, told a briefing in Beijing today. "Employment is being impacted by factory closures and many migrant workers are returning to their home towns."
The central bank yesterday cut borrowing costs by the most in over a decade to encourage lending and ease the financial burden on thousands of companies that are laying off workers as they struggle to cope with falling orders. Premier Wen Jiabao wants consumers at home to spend more to offset the impact of slowing demand from overseas and prevent unemployment spiraling.
The government will take more measures to boost domestic consumption and bolster growth, the commission, the nation's top economic planning agency, said in a statement yesterday. Farmers' incomes must be raised and small businesses facing difficulties must be helped, the statement said.
Notwithstanding all the hoopla about the rise of China's billion consumers, the body blow that's now landing in the industrial heartland will debunk the notion that China has already begun transitioning toward a new growth model based less on exports and investment and more on household consumption. "We would love to believe it too, but it just ain't so," wrote Standard Chartered bank's highly respected China economist, Stephen Green, last month. He says expecting Chinese spending to save the world from recession is "a pipe dream."
With China at the vanguard, Asia as a whole stands dangerously exposed to external shock. Since the late 1990s, household consumption as a share of China's GDP has fallen from roughly half to 35 percent. On the flip side, the share of Asia ex-Japan's output devoted to exports is now more than 45 percent, or roughly 10 points higher than it was on the eve of the 1997–98 Asian financial crisis...."We are where we are because of massive imbalances that policymakers and politicians have allowed to build up over the last decade," argues Stephen Roach, chairman of Morgan Stanley Asia. "Those imbalances were never sustainable, but the longer they went on the more they seduced people. And now we're paying the ultimate price for that seduction."...
China's rebalancing act is actually much tougher than America's...in China, where total household consumption is just 5 percent of America's by value, the challenge is to sustain an economy that's largely investment- and export-driven, which means finding ways to perpetuate industrial overproduction. Michael Pettis, a professor of finance at Peking University, says America found itself in the same bind back in 1929. "The U.S. in the 1920s ran a huge trade surplus and had the largest reserves in history to that point," he says. "So was the U.S. immune to the global crisis? No. It was the country that suffered the most. In that sense it is exactly like China today."
Beijing realizes the growth trap it's in. Why else would it unveil on Nov. 10 a $590 billion stimulus plan—a package nearly as large as Washington's $700 billion financial bailout—just days after it announced that China's economy expanded by 9 percent in the July–September quarter?...
Beijing's stimulus plan has won plaudits internationally not least because it indicates that Chinese leaders won't stand idly by as the crisis deepens....
America's self-defeating mistake was to cut off world trade, particularly in the Smoot-Hawley Tariff Act.... the mistake Beijing must avoid is moving too hard to sell more manufactured exports at the risk of flooding an already weak market, and triggering a protectionist backlash.....
The doubts about China's stimulus plan arise in part because it's all broad strokes with no fine print..... Economists estimate that only a quarter of the $590 billion is new money as opposed to previously announced spending, future tax cuts and unfunded mandates passed down to local governments. There's reason to expect that much of the promised social spending—and the consumer empowerment it represents—may not materialize. One warning signal is that Beijing has entrusted much of the safety net stuff to the provinces, which historically have put a low priority on building schools, unless the order to do so comes with earmarked funding from Beijing...
To understand the linkage between social services and household consumption, visit a Chinese hospital. At check-in, patients are required to deposit money up-front, and when that funding runs dry they're tossed out onto the street....Likewise, poor kids can't attend school without paying fees, and most migrants are uninsured against job-site accidents at any price. Families cope by saving an estimated 25 percent of their disposable income, just in case....
The prescription for change has been obvious since the late 1990s. It includes balanced growth between booming east and lagging west; efforts to narrow the yawning income gap between China's superrich and everyone else; and policies that channel the massive earnings logged by the state-owned conglomerates that dominate China Inc. back into government coffers to fund social spending. Yet campaigns with names like Go West meant to spur investment in the hinterland never amounted to more than propaganda exercises, and a long-mulled plan for the government to charge state companies dividend on their huge profits remains a small-scale experiment. In October, Standard Chartered noted a "gulf between aspirations and actual policies" illustrated by Beijing's long-standing bias toward investment and exports, and support for "state-protected oligopolies." Pettis argues that Beijing's persistent mercantilism has prepared it for the wrong crisis—specifically, an external debt shock akin to the one that ravaged Asia in 1997-98, against which China's huge savings and foreign reserve pools would make it "superbly protected." Yet as with America in 1929, China is the nation most exposed in the world to a collapse in global demand today.
As such, Beijing finds itself in a fix as 2008 winds to an ignominious close. Export promotion offers a viable short-term means of keeping the factories of China running—yet grabbing more market share amid a global downturn is the surest way to incite protectionism. During the recent gathering of G20 leaders in Washington, much public emphasis was placed on shoring up the global financial architecture and defending free trade. Yet former New Zealand prime minister Mike Moore, who headed the World Trade Organization from 1999 to 2002, believes the backroom talks focused on the imperative that Asia not try to export its way out of today's crisis. It was "the elephant in the room; how China, and to a lesser extent India and the Southeast Asians, must become consuming countries," he says. "It's overwhelmingly in [their] interest to become a lot less reliant on exports, and it also does right by the people they represent. Not to do it could trigger something that's very, very unpleasant." Global trade slumped 70 percent in the 1930s, and any return to the virulent economic nationalism of that era "would turn crisis into catastrophe," warns Moore.
That presents Beijing with a leadership challenge very different from the one it confronted with tanks and soldiers in 1989. Today, it must work to maintain enough harmony in the global trade arena so as not to lose access to vital overseas markets, while telling the Chinese people that fast growth isn't their birthright. In essence, Beijing must offer a new social contract in which consumption bolstered with a social safety net replaces the export-driven growth engine that has powered China's economy for 30 years. FDR did that in America in the 1930s, but it took a decade. Might China's leaders fare any better? In the late 1990s, then Premier Zhu Rongji refrained from devaluing China's currency when many of its neighbors did so; the decision lost China some export momentum but gained its leadership a reputation for responsible global action. Today's leaders have maintained that reputation, but given the enormity of the economic challenges at hand, the only safe bet is that their helmsmanship will be tested to the extreme in 2009. Especially if the pessimists are correct and China's economy grinds to a halt.
It's bailout time. Let's start with Paul Kedrosky:
Good Bank, Bad Bank, and F---ed Bank: Apparently Citibank and the U.S. government (i.e., we taxpayers) have reached a deal whereby we will backstop something like $300-billion in screwed assets on Citi's balance sheet. ... Here is the gist:
- Citi will carve out $300-billion in troubled assets, which will remain on its balance sheet
- The first $37-$40-billion in losses on those assets will go to Citi
- The next $5-billion in losses will hit Treasury
- The next $10-billion in losses will go to the FDIC
- Any more losses will go to the Fed
- There will be no management changes at Citi, because, you know, they are all fine and upstanding people who have done nothing wrong
- There will be some compensation limitations, but those have not yet been made clear
To be clear, this is not a "bad bank" model. Assets are not, apparently, being taken off the Citi balance sheet and put into another entity walled off from the Citi biological host. Instead, they are being left on the Citi balance sheet, but tagged and bagged for eventual disposal via taxpayers. ...
I'll have more when there is more, and I know the equity futures markets like it -- it's admittedly less terrifying that letting Citi fail -- but so far I'm not impressed. ...
Yves Smith:
WSJ: US Agrees to Bail Out Citi (Updated): ...Note key element of the deal is that the Federal government will guarantee $300 billion of Citi assets, a much bigger number than had been leaked earlier, with a rather convoluted loss-sharing arrangement, but the bottom line is that Citi is at risk for at most $40 billion. Citi also gets a $20 billion equity injection, on slightly more onerous terms than the initial TARP investments, but still more favorable than Warren Buffett's investment in Goldman. Oh, and it appears there will be NO management changes.
I do not see how GM can be denied a rescue now (not that that outcome is really in doubt, merely how much pain will be inflicted on management and the UAW). ...Update 12:50 AM: Bloomberg's story puts the bad asset program slightly higher, at $306 billion. ...
Calculated Risk has the Joint Statement by Treasury, Federal Reserve, and the FDIC on Citigroup, while James Kwak says the bailout is "Weak, Arbitrary, Incomprehensible." I think he has it right:
Citigroup Bailout: Weak, Arbitrary, Incomprehensible: According to the Wall Street Journal, the deal is done. Here are the terms. In short: (a) Citi gets another $27 billion on the same terms as the first $25 billion, except that the interest rate is now 8% instead of 5%, and there is a cap on dividends of $0.01 per share per quarter; and (b) the government (Treasury, FDIC, Fed) agrees to absorb 90% of losses above $29 billion on a $306 billion slice of Citi's assets, made up of residential and commercial mortgage-backed securities. (If triggered, some of that guarantee will be provided as a loan from the Fed.) There is also a warrant to buy up to $2.7 billion worth of common stock (I presume) at a staggeringly silly price of $10.61 per share (Citi closed at $3.77 on Friday).
The government (should have) had two goals for this bailout. First, since everyone assumes Citi is too big to fail, the bailout had to be big enough that it would settle the matter once and for all. Second, it had to define a standard set of terms that other banks could rely on and, more importantly, the market could rely on being there for other banks. This plan fails on both counts.
The arithmetic on this deal doesn't seem to work for me (feel free to help me out). Citi has over $2 trillion in assets and several hundred billions of dollars in off-balance sheet liabilities. $27 billion is a drop in the bucket. Friedman Billings Ramsey last week estimated that Citi needed $160 billion in new capital. (I'm not sure I agree with the exact number, but that's the ballpark.) Yes, there is a guarantee on $306 billion in assets (which will not get triggered until that $27 billion is wiped out), but that leaves another $2 trillion in other assets, many of which are not looking particularly healthy. If I'm an investor, I'm thinking that Citi is going to have to come back again for more money.
In addition, the plan is arbitrary and cannot possibly set an expectation for future deals. In particular, by saying that the government will back some of Citi's assets but not others, it doesn't even establish a principle that can be followed in future bailouts. In effect, the message to the market was and has been: "We will protect some (unnamed) large banks from failing, but we won't tell you how and we'll decide at the last minute.)" As long as that's the message, investors will continue to worry about all U.S. banks.
The third goal should have been getting a good deal for the U.S. taxpayer, but instead Citi got the same generous terms as the original recapitalization. 8% is still less than the 10% Buffett got from Goldman; a cap on dividends is a nice touch but shouldn't affect the value of equity any. By refusing to ask for convertible shares, the government achieved its goal of not diluting shareholders and limiting its influence over the bank. And an exercise price of $10.61 for the warrants? It is justified as the average closing price for the preceding 20 days, but basically that amounts to substituting what people really would like to believe the stock is worth for what it really is worth ($3.77).
How does this kind of thing happen? A weekend is really just not that much time to work out a deal. Maybe next time Treasury and the Fed should have a plan before going into the weekend?
What, and ruin a perfect record? Robert Reich:
Citigroup Scores: If you had any doubt at all about the primacy of Wall Street over Main Street; the utter lack of transparency behind the biggest government giveaway in history to financial executives, and their shareholders, directors, and creditors; and the intimate connections the lie between Administrations -- both Republican and Democratic -- and the heavyweights on Wall Street, your doubts should be laid to rest. Today it was decided the government will guarantee more than $300 billion of troubled mortgages and other assets of Citigroup under a federal plan to stabilize the lender after its stock fell 60 percent last week. The company will also will get a $20 billion cash infusion from the Treasury Department, adding to the $25 billion the bank received last month under the Troubled Asset Relief Program.
This is not a particularly good deal for American taxpayers, but it is a marvelous deal for Citi. In return for all the cash and guarantees they are giving away, taxpayers will get only $27 billion of preferred shares paying an 8 percent dividend. No other strings are attached. The senior executives of Citi, including those who have served at the highest levels in the US government, have done their jobs exceedingly well. The American public, including the media, have not the slightest clue what just happened.
Meanwhile, more than a million workers in the automobile industry, along with six million mortgagees, and a millions of Americans who depend on small businesses and retailers for paychecks, are getting nothing at all.
As I noted the other day, the difference in urgency between saving wall street and saving main street is apparent.
John Jansen says somebody will pay for this:
Reaction to the Bailout: Tokyo is closed so there is no US Treasury trading this evening. We will have to wait for Europe to arrive to get a reaction.
Stocks are higher. That also seems ludicrous. I do not care what they call this but Citibank is effectively acknowledging that they did not have the resources to survive alone without government assistance. I did not use the words bankrupt or insolvent.
I think that when participants think about this soberly they will be very disturbed and I am saddened to say that the markets will line up one of the remaining survivors for a pre holiday turkey shoot. It has been the history of this rolling crisis since August 2007 that the worst outcome ensues. The market will seek another prey and relentlessly pursue it.
Update: Paul Krugman:
A bailout was necessary — but this bailout is an outrage: a lousy deal for the taxpayers, no accountability for management, and just to make things perfect, quite possibly inadequate, so that Citi will be back for more.
Amazing how much damage the lame ducks can do in the time remaining.
Update: More from Arnold Kling
For all of the Depression Mania, there is a lot of the U.S. economy that does not have to shrink. Manufacturing is pretty lean to begin with. Housing construction is already much lower than it has been in years. Unlike the 1930's, we have some very big sectors (health care, education, other government employment) that are unlikely to develop massive layoffs.
The one sector that definitely needs to contract is the financial sector. Maintaining Citi as a zombie bank is not really constructive. I would feel better if it were carved up, with the viable pieces sold to other firms and the remainder wound down by government. In my view, getting the financial sector down to the right size ought to be done sooner, rather than later.
From my perspective, the whole TARP/bailout concept is misconceived. The priority should not be saving firms. The priority should be pruning the industry. Get rid of the weak firms, and make good on deposit insurance. Then let the remaining firms provide the lending that the economy needs.
Update: Felix Salmon says the bailout is underwhelming.
Update: John Hempton:
The consensus is that the Citigroup bailout was bad...I am going to differ here. The bailout was well designed...
except1). The Government should have taken a much larger fee - at least 20 percent ownership of Citigroup - and arguably more. Shareholders should be punished.2). The attachment point of the excess of loss policy is too high. If the attachment point had been 80 billion Citigroup would survive. There was no need for a 40 billion dollar attachment point.The problem with the bailout was not the design - it was the amount extracted from Citigroup shareholders. The government took too much risk for too little reward.I am surprised that the shareholders were not effectively wiped out as per Fannie, Freddie, AIG.Not displeased - but somewhere I wish the government would get a happy medium somewhere - rather than one rule Citigroup and one rule for Fannie.
Update: Andrew Samwick:
The technical term for this is a joke.
Citigroup has plenty of assets. It has just written too many claims on those assets. Those holding those claims need to face the reality that their claims are worth less than they were promised and adjust to that reality. That means either liquidating the firm, selling off the assets to the highest bidders, or becoming the new equity holders of the firm. The FDIC can get involved as needed to manage its contingent liabilities to insured depositors.
If the government is to get involved beyond that, it should be senior debt to the restructured entity, not preferred equity (i.e. junior to the most junior debt) to the existing entity.
Update: Barry Ritholtz:
Un-fricking-believable.
The US is guaranteeing $306 billion on bad investments (So much for Capitalism without failure). For Citi, its a great deal — but its a terrible one for taxpayers.
The dividend payment has been restricted to one cent per quarter for 3 years. Can someone explain why even a penny is allowed?
Where is the "Protection" for the taxpayers? Where are the clawbacks? How about going after the idiots that bought a third of a trillion dollars worth of junk, and then got paid large on it? Where is the sense of outrage and justice?
At what point do taxpayers demand that the people responsible for creating this mess must pay their pound of flesh?
Update: Brad DeLong:
It is unclear to me why they aren't just buying common stock. As it is, they're endangering their own reputations to an extraordinary degree...
Via Mint, comes this not quite perfect (some causation omissions) but close enough to be intriguing enough visualization of the credit crunch:
>
Source:
A Visual Guide to the Financial Crisis
WallStats.com, 11/13/2008
Most people believe that the official urban employment rate significantly understates real urban unemployment, and although I have hear that real unemployment is as high as 10-11%, I have seen nothing very credible on the issue. I assume unemployment is higher but I don't really know what it is.
If unemployment is rising, however, it does mean that there will be serious pressure to do whatever it takes to support employment growth. One thing that I am worried about (and this was the subject of the "longish writing commitment" I mentioned above) is that it puts pressure on the government to engineer measures to expand export growth. For example I suspect that the fight over whether or not to continue appreciating, and even depreciate, the RMB is intense. Two days ago Bloomberg had a piece that said the following:The yuan fell as policy makers focus on supporting exporters amid signs the world's fourth-largest economy is slowing because of global financial turmoil…"We expect the dollar to move higher versus the yuan as the focus shifts decisively to growth," said Thomas Harr, a senior foreign exchange strategist with Standard Chartered Plc in Singapore. "But not a massive move though, probably up to close to 7 in the first half" of next year, he said. The currency traded at 6.8270 per dollar in Shanghai as of 9:45 a.m., compared with 6.8269 yesterday, according to the China Foreign Exchange Trade System.
Perhaps more importantly, Xinhua said in an article on Monday that:China's Ministry of Finance announced on Monday a list of 3,770 items involved in the third export tax rebate increase this year. The items include labor-intensive, mechanical and electrical products. New export tax rebate rates on these items were also announced. The change take effect Dec. 1....
Export subsidies, depreciating RMB – all of this might seem to make sense if you look at China as divorced from the global balance of payments system...
But if you think of China's role within the global balance of payments, it seems to me that this is little more that a form of Smoot-Hawley-with-Chinese-characteristics. Global demand is slowing, just as it did in the 1930s, and China as the leading source of global overcapacity is trying to address its global demand problem by shifting the burden abroad.
In that light I should mention a recent exchange... Reference was made to a recent Washington Post OpEd piece by the British historian Niall Ferguson....:Ferguson is probably right to compare the 2008 G20 with the failed 1933 London conference, but the problems with this account, I think, is that he has the US playing the same role in the 1930s as today. But the positions are very different.
In the 1930 it was the US who had huge overcapacity which it exported abroad (via huge trade surpluses) and it was Europeans who were over-consuming, financed by capital exports from the US. When the credit crunch came it was unreasonable, as Keynes argued bitterly, to expect the rest of the world to continue demanding US goods, especially since the financing of their consumption had been interrupted. Since US production significantly exceeded US consumption (with the balance consisting of course of the trade surplus), the need for demand creation most logically rested in the US.
As we all know, in spite of FDR's Keynesian reputation (he wasn't) the US not only failed to expand fiscally as much as it needed to but it actually tried to use trade restrictions to protect its overcapacity problem and "export" its lack of demand to the rest of the world. That didn't work, and when world trade collapsed the US had to bear the full adjustment cost of the gap between production and consumption, and it did so in the most difficult possible way, by contracting production.
Today it is China who is exporting overcapacity and it is the US who is consuming too much, fed by Chinese financing. With the collapse of bank intermediation US households and businesses are cutting consumption and raising savings. This is a necessary adjustment. Calling on the US government to engage in massive fiscal expansion to replace lost private demand is crazy. It means that we should continue the current game that has led us into so much trouble, but instead of having US over-consumption and rising debt at the private level we must have it at the public level.
If Keynes were around today he would probably make the same point he did over 60 years ago. Demand must be created by the current account surplus countries, which have, to date, relied on net exports to protect themselves from the consequence of their overcapacity. They must force demand up quickly in order to close the gap, and since expecting private consumption to rise quickly enough is unrealistic, it has to be public consumption – a large fiscal deficit.
Just as the US stupidly tried to increase its ability to dump capacity abroad by creating import restrictions (which has the effect of further expanding domestic production), China seems to be hoping for the same thing by increasing export rebates and slowing the currency appreciation (there is even increasing talk of depreciation).
This can't work for long. The world has excess production and there is a need for the US to reduce its demand and increase its savings. The only proper place for new demand to originate is, once again as in the 1930s, from current account surplus countries. They should be engaged in demand creation, not supply creation. If they continue trying to export their way out of a slowdown, there will almost certainly be a trade war, as in the 1930s, and the full force of the adjustment will be borne by the current account surplus countries, again as in the 1930s. Remember that back then the current account deficit countries, like Germany after 1932, found it relatively easy to limit the impact of the crisis by forcing balanced trade — which has the effect of increasing demand (domestic) and reducing supply (foreign).
It is amazing to me that people like Ferguson, who have been arguing correctly for years that US consumed too much and saved too little, are now terrified of the necessary adjustment, and are arguing that it should be stopped and even reversed. The process cannot be stopped – US savings are too low and will rise one way or the other. The global imbalance between production and consumption must grow because US and European consumption must decline, and if we cannot find a new source of demand, there will have to be a contraction in production. In an open world, the contraction will be paid for by everybody more or less equally, with those aggressively pursuing export growth getting off relatively lightly and the rest doing worse. In a closed world most of the cost will be borne by the countries with overcapacity.
If Asian countries continue to try to boost exports it is not hard to see why this could easily lead to trade barriers.
China needs to resolve this problem by expanding fiscally, not by stimulating exports. The US in the same position sixty years ago tried to do the same thing China is doing (half-hearted fiscal stimulus and more interfering with trade in order to alter the terms in its favor), with disastrous consequences mainly for itself. Instead of looking for and dreading Smoot-Hawley in US or European policy-making, we really need to worry about an Asian Smoot-Hawley.
Remember that there is no difference in this case between restricting imports and subsidizing exports and, by the way, currency depreciation does both.
High-street banks are continuing to hit businesses with punitive interest rates for loans and overdrafts and are resorting to more severe measures to ensure they are paid.
Some are demanding that owners of small businesses put up personal assets as collateral in return for a business loan. Others are changing conditions of loans by sending emails rather than meeting in person, and giving borrowers just 48 hours to comply with unilaterally-rearranged overdraft and lending agreements.
The Business Secretary, Lord Mandelson, said he was alarmed by the banks' behaviour: "That is not the sort of constructive relationship that is sustainable between banks and businesses...
Paul Cox, from Surrey, was also asked for his personal property to be put up as collateral against a business loan by the Royal Bank of Scotland just last month – despite an excellent record with the bank. "I'm fortunate – I could walk away," said Mr Cox. "Others have to accept punitive terms." RBS received the biggest slice of the Government's bailout deal – up to £20bn.
The Federation of Small Businesses (FSB) said that when some members approached banks to discuss loan agreements, their accounts were reissued under harsher lending terms.
Chief executives of Britain's big banks, who have been regularly meeting with the Government and small business groups, have all made positive noises about ensuring viable small businesses have the access to finance that they need. But branch managers are often reluctant to return to relaxed lending policies which may put their branches in a perilous position.
Apropos of Krugman's evisceration of the underbriefed George F. Will http://delong.typepad.com/sdj/2008/11/what-a-change-t.html:
I have never been able to make any sense at all of the right-wing claim that the New Deal prolonged the Great Depression by creating a "crisis of confidence" that crippled private investment as American businessmen feared and hated "that Communist Roosevelt." The crisis of confidence was created by the stock market crash, the deflation, and the bank failures of 1929-1933. Private investment recovered in a very healthy fashion as Roosevelt's New Deal policies took effect.
The interruption of the Roosevelt Recovery in 1937-1938 is, I think, wel understood: Roosevelt's decision to adopt more "orthodox" economic policies and try to move the budget toward balance and the Federal Reserve's decision to contract the money supply by raising bank reserve requirements provide ample explanation of that downturn. And once those two factors had run its course the continuation of Roosevelt's policies was no obstacle to an investment recovery driven by war-related exports monetary expansion produced by capital flight from Europe.
You can argue--and I occasionally do--that had the Supreme Court not ruled the NIRA unconstitutional it would have exerted a significant drag on medium-run economic recovery. But the Supreme Court did rule the NIRA unconstitutional, 9-0, Brandeis voting alongside MacReynolds.
Sumner H. Slichter (1938), "The Downturn of 1937," Review of Economics and Statistics 20:3 (August), pp. 97-110.
UPDATE: Pro-Growth Liberal also weighs in: http://econospeak.blogspot.com/2008/11/net-investment-under-fdr-krugman-v-will.html.
And we have http://www.huffingtonpost.com/2008/11/17/paul-krugman-schools-geor_n_144298.html, http://yglesias.thinkprogress.org/archives/2008/11/will_v_krugman_on_the_depression.php, http://www.thewashingtonnote.com/archives/2008/11/a_sweet_77_seco/, http://mainstusa.blogspot.com/2008/11/krugman-explains-depression-to-george.html, http://firedoglake.com/2008/11/17/early-morning-swim-special-krugman-pwns-will-edition/, http://www.washingtonmonthly.com/archives/individual/2008_11/015686.php, http://sanseverything.wordpress.com/2008/11/16/bambi-versus-godzilla-the-economic-edition/.
And Debra Cooper emails:
Back in the bad ole days, not so long ago....George Will would have said his nonsense, looking and sounding professorial; Cokie Roberts would have seconded in her no nonsense kind of way (after all her parents were Democratic party icons) and the another lie would have sustained the right wing economic hegemony on elite opinion. Now we have a Nobel Prize winning economist to put away in a few quick, well chosen, well sourced progressive views that George Will just spouts crap.
Paul has had a column since 2000, but he hasn't had the impact he deserved. The internet has lent great support to that.
In addition to taking due credit for the election of a center left Democrat, the netroots should take an enormous and continuing bow for changing the media environment for the better.
One reason why so many analysts failed to anticipate the worst financial crisis this century stems from their lack of historical perspective. Many believed that since the world had "progressed," there was little point in taking account of what had occurred in less sophisticated times.
That meant they generally ignored developments that took place more than a decade or two ago, or in the best case, prior to World War II. Of course, if they had not limited themselves in that way, they might have been more open to seeing circumstances that bore a sriking resemblance to those of today.
Yet even I have been somewhat limited. While I saw parallels between the excesses of the past decade and those of the 1920s, there have been other periods that likely would have provided additional color in terms of how things might play out from here.
In a commentary for The Chronicle of Higher Education, "The Real Great Depression," Scott Reynolds Nelson, an author and professor of history at the College of William and Mary, highlights one dark period in our past that offers up some potentially tantalizing clues about our future.
The depression of 1929 is the wrong model for the current economic crisis
As a historian who works on the 19th century, I have been reading my newspaper with a considerable sense of dread. While many commentators on the recent mortgage and banking crisis have drawn parallels to the Great Depression of 1929, that comparison is not particularly apt. Two years ago, I began research on the Panic of 1873, an event of some interest to my colleagues in American business and labor history but probably unknown to everyone else. But as I turn the crank on the microfilm reader, I have been hearing weird echoes of recent events.
When commentators invoke 1929, I am dubious. According to most historians and economists, that depression had more to do with overlarge factory inventories, a stock-market crash, and Germany's inability to pay back war debts, which then led to continuing strain on British gold reserves. None of those factors is really an issue now. Contemporary industries have very sensitive controls for trimming production as consumption declines; our current stock-market dip followed bank problems that emerged more than a year ago; and there are no serious international problems with gold reserves, simply because banks no longer peg their lending to them.
In fact, the current economic woes look a lot like what my 96-year-old grandmother still calls "the real Great Depression." She pinched pennies in the 1930s, but she says that times were not nearly so bad as the depression her grandparents went through. That crash came in 1873 and lasted more than four years. It looks much more like our current crisis.
The problems had emerged around 1870, starting in Europe. In the Austro-Hungarian Empire, formed in 1867, in the states unified by Prussia into the German empire, and in France, the emperors supported a flowering of new lending institutions that issued mortgages for municipal and residential construction, especially in the capitals of Vienna, Berlin, and Paris. Mortgages were easier to obtain than before, and a building boom commenced. Land values seemed to climb and climb; borrowers ravenously assumed more and more credit, using unbuilt or half-built houses as collateral. The most marvelous spots for sightseers in the three cities today are the magisterial buildings erected in the so-called founder period.
But the economic fundamentals were shaky. Wheat exporters from Russia and Central Europe faced a new international competitor who drastically undersold them. The 19th-century version of containers manufactured in China and bound for Wal-Mart consisted of produce from farmers in the American Midwest. They used grain elevators, conveyer belts, and massive steam ships to export trainloads of wheat to abroad. Britain, the biggest importer of wheat, shifted to the cheap stuff quite suddenly around 1871. By 1872 kerosene and manufactured food were rocketing out of America's heartland, undermining rapeseed, flour, and beef prices. The crash came in Central Europe in May 1873, as it became clear that the region's assumptions about continual economic growth were too optimistic. Europeans faced what they came to call the American Commercial Invasion. A new industrial superpower had arrived, one whose low costs threatened European trade and a European way of life.
As continental banks tumbled, British banks held back their capital, unsure of which institutions were most involved in the mortgage crisis. The cost to borrow money from another bank — the interbank lending rate — reached impossibly high rates. This banking crisis hit the United States in the fall of 1873. Railroad companies tumbled first. They had crafted complex financial instruments that promised a fixed return, though few understood the underlying object that was guaranteed to investors in case of default. (Answer: nothing). The bonds had sold well at first, but they had tumbled after 1871 as investors began to doubt their value, prices weakened, and many railroads took on short-term bank loans to continue laying track. Then, as short-term lending rates skyrocketed across the Atlantic in 1873, the railroads were in trouble. When the railroad financier Jay Cooke proved unable to pay off his debts, the stock market crashed in September, closing hundreds of banks over the next three years. The panic continued for more than four years in the United States and for nearly six years in Europe.
The long-term effects of the Panic of 1873 were perverse. For the largest manufacturing companies in the United States — those with guaranteed contracts and the ability to make rebate deals with the railroads — the Panic years were golden. Andrew Carnegie, Cyrus McCormick, and John D. Rockefeller had enough capital reserves to finance their own continuing growth. For smaller industrial firms that relied on seasonal demand and outside capital, the situation was dire. As capital reserves dried up, so did their industries. Carnegie and Rockefeller bought out their competitors at fire-sale prices. The Gilded Age in the United States, as far as industrial concentration was concerned, had begun.
As the panic deepened, ordinary Americans suffered terribly. A cigar maker named Samuel Gompers who was young in 1873 later recalled that with the panic, "economic organization crumbled with some primeval upheaval." Between 1873 and 1877, as many smaller factories and workshops shuttered their doors, tens of thousands of workers — many former Civil War soldiers — became transients. The terms "tramp" and "bum," both indirect references to former soldiers, became commonplace American terms. Relief rolls exploded in major cities, with 25-percent unemployment (100,000 workers) in New York City alone. Unemployed workers demonstrated in Boston, Chicago, and New York in the winter of 1873-74 demanding public work. In New York's Tompkins Square in 1874, police entered the crowd with clubs and beat up thousands of men and women. The most violent strikes in American history followed the panic, including by the secret labor group known as the Molly Maguires in Pennsylvania's coal fields in 1875, when masked workmen exchanged gunfire with the "Coal and Iron Police," a private force commissioned by the state. A nationwide railroad strike followed in 1877, in which mobs destroyed railway hubs in Pittsburgh, Chicago, and Cumberland, Md.
In Central and Eastern Europe, times were even harder. Many political analysts blamed the crisis on a combination of foreign banks and Jews. Nationalistic political leaders (or agents of the Russian czar) embraced a new, sophisticated brand of anti-Semitism that proved appealing to thousands who had lost their livelihoods in the panic. Anti-Jewish pogroms followed in the 1880s, particularly in Russia and Ukraine. Heartland communities large and small had found a scapegoat: aliens in their own midst.
The echoes of the past in the current problems with residential mortgages trouble me. Loans after about 2001 were issued to first-time homebuyers who signed up for adjustablerate mortgages they could likely never pay off, even in the best of times. Real-estate speculators, hoping to flip properties, overextended themselves, assuming that home prices would keep climbing. Those debts were wrapped in complex securities that mortgage companies and other entrepreneurial banks then sold to other banks; concerned about the stability of those securities, banks then bought a kind of insurance policy called a credit-derivative swap, which risk managers imagined would protect their investments. More than two million foreclosure filings — default notices, auction-sale notices, and bank repossessions — were reported in 2007. By then trillions of dollars were already invested in this credit-derivative market. Were those new financial instruments resilient enough to cover all the risk? (Answer: no.) As in 1873, a complex financial pyramid rested on a pinhead. Banks are hoarding cash. Banks that hoard cash do not make short-term loans. Businesses large and small now face a potential dearth of short-term credit to buy raw materials, ship their products, and keep goods on shelves.
If there are lessons from 1873, they are different from those of 1929. Most important, when banks fall on Wall Street, they stop all the traffic on Main Street — for a very long time. The protracted reconstruction of banks in the United States and Europe created widespread unemployment. Unions (previously illegal in much of the world) flourished but were then destroyed by corporate institutions that learned to operate on the edge of the law. In Europe, politicians found their scapegoats in Jews, on the fringes of the economy. (Americans, on the other hand, mostly blamed themselves; many began to embrace what would later be called fundamentalist religion.)
The post-panic winners, even after the bailout, might be those firms — financial and otherwise — that have substantial cash reserves. A widespread consolidation of industries may be on the horizon, along with a nationalistic response of high tariff barriers, a decline in international trade, and scapegoating of immigrant competitors for scarce jobs. The failure in July of the World Trade Organization talks begun in Doha seven years ago suggests a new wave of protectionism may be on the way.
In the end, the Panic of 1873 demonstrated that the center of gravity for the world's credit had shifted west — from Central Europe toward the United States. The current panic suggests a further shift — from the United States to China and India. Beyond that I would not hazard a guess. I still have microfilm to read.
Wesley Clark says economists who oppose bailing out automakers are forgetting about national security needs:
What's Good for G.M. Is Good for the Army, by Wesley K. Clark, Commentary, NY Times: ...Some economists question the wisdom of Washington's intervening to help the Big Three... But we must act: aiding the American automobile industry is not only an economic imperative, but also a national security imperative. ...
During the 1950s, advances in aviation, missiles, satellites and electronics made Detroit seem a little old-fashioned in dealing with the threat of the Soviet Union. ... But in 1991, the Persian Gulf war demonstrated the awesome utility of American land power, and the Humvee ... became a star. ...
In a little more than a year, the Army has procured and fielded in Iraq more than a thousand so-called mine-resistant ambush-protected vehicles. The lives of hundreds of soldiers and marines have been saved, and their tasks made more achievable, by the efforts of the American automotive industry. And unlike in World War II, America didn't have to divert much civilian capacity to meet these military needs. Without a vigorous automotive sector, those needs could not have been quickly met.
More challenges lie ahead for our military, and to meet them we need a strong industrial base. For years the military has sought better sources of electric power in its vehicles — necessary to allow troops to monitor their radios with diesel engines off, to support increasingly high-powered communications technology, and eventually to support electric propulsion and innovative armaments... In sum, this greater use of electricity will increase combat power while reducing our footprint. Much research and development spending has gone into these programs over the years, but nothing on the manufacturing scale we really need.
Now, though, as Detroit moves to plug-in hybrids and electric-drive technology, the scale problem can be remedied. Automakers are developing innovative electric motors ... that will have immediate military use. And only the auto industry, with its vast purchasing power, is able to establish a domestic advanced battery industry. Likewise, domestic fuel cell production — which will undoubtedly have many critical military applications — depends on a vibrant car industry.
To be sure, the public should demand transformation and new standards in the auto industry before paying to keep it alive. And we should insist that Detroit's goals include putting America in first place in hybrid and electric automotive technology, reducing the emissions of the country's transportation fleet, and strengthening our competitiveness abroad.
This should be no giveaway. Instead, it is a historic opportunity to get it right in Detroit for the good of the country. But Americans must bear in mind that any federal assistance plan would not be just an economic measure. This is, fundamentally, about national security.
Learning from FDR's mistakes:
Franklin Delano Obama?, by Paul Krugman, Commentary, NY Times: Suddenly, everything old is New Deal again. Reagan is out; F.D.R. is in. Still, how much guidance does the Roosevelt era really offer for today's world?
The answer is, a lot. But Barack Obama should learn from F.D.R.'s failures as well as from his achievements: the truth is that the New Deal wasn't as successful in the short run as it was in the long run. And the reason..., which almost undid his whole program, was the fact that his economic policies were too cautious. ...
Rahm Emanuel, Mr. Obama's new chief of staff, has declared that "you don't ever want a crisis to go to waste." Progressives hope that the Obama administration, like the New Deal, will respond to the current economic and financial crisis by creating institutions, especially a universal health care system, that will change the shape of American society for generations to come. ...
Now, there's a whole intellectual industry, mainly operating out of right-wing think tanks,... propagating the idea that F.D.R. actually made the Depression worse. So it's important to know that ... the ... New Deal brought real relief to most Americans.
That said, F.D.R. did not ... manage to engineer a full economic recovery during his first two terms. This failure is often cited as evidence against Keynesian economics... But the definitive study of fiscal policy in the '30s, by ... economist E. Cary Brown, reached a very different conclusion: fiscal stimulus was unsuccessful "not because it does not work, but because it was not tried."
This may seem hard to believe. The New Deal famously placed millions of Americans on the public payroll... Didn't ...[this] amount to a major fiscal stimulus?
Well, it wasn't as major as you might think. The effects of federal public works spending were largely offset by ... a large tax increase, enacted by Herbert Hoover, whose full effects weren't felt until his successor took office. Also, expansionary policy ... was undercut by spending cuts and tax increases at the state and local level.
And F.D.R. wasn't just reluctant to pursue an all-out fiscal expansion — he was eager to return to conservative budget principles. That eagerness almost destroyed his legacy. After winning a smashing election victory in 1936, the Roosevelt administration cut spending and raised taxes, precipitating an economic relapse that drove the unemployment rate back into double digits and led to a major defeat in the 1938 midterm elections.
What saved the economy, and the New Deal, was the enormous public works project known as World War II, which finally provided a fiscal stimulus adequate to the economy's needs.
This history offers important lessons for the incoming administration.
The political lesson is that economic missteps can quickly undermine an electoral mandate. Democrats won big last week — but they won even bigger in 1936, only to see their gains evaporate after the recession of 1937-38. Americans don't expect instant economic results from the incoming administration, but they do expect results...
The economic lesson is the importance of doing enough. F.D.R. thought he was being prudent by reining in ... spending...; in reality, he was taking big risks with the economy... My advice to the Obama people is to figure out how much help they think the economy needs, then add 50 percent. It's much better, in a depressed economy, to err on the side of too much stimulus than ... too little.
In short, Mr. Obama's chances of leading a new New Deal depend largely on whether his short-run economic plans are sufficiently bold. Progressives can only hope that he has the necessary audacity.
Along with former Federal Reserve Board chairman Alan Greenspan, Rubin and Summers compose the high priesthood of the bubble economy. Their policy of one-sided financial deregulation is responsible for the current economic catastrophe.
It is important to separate Clinton-era mythology from the real economic record. In the mythology, Clinton's decision to raise taxes and cut spending led to an investment boom. This boom led to a surge in productivity growth. Soaring productivity growth led to the low unemployment of the late 1990s and wage gains for workers at all points along the wage distribution.
At the end of the administration, there was a huge surplus, and we set target dates for paying off the national debt. The moral of the myth is that all good things came from deficit reduction.
The reality was quite different. There was nothing resembling an investment boom until the dot-com bubble at the end of the decade funnelled vast sums of capital into crazy internet schemes. There was a surge in productivity growth beginning in 1995, but this preceded any substantial upturn in investment. Clinton had the good fortune to be sitting in the White House at the point where the economy finally enjoyed the long-predicted dividend from the information technology revolution.
Rather than investment driving growth during the Clinton boom, the main source of demand growth was consumption...
The other key part of the story is the high dollar policy initiated by Rubin when he took over as Treasury secretary...
A lowered dollar value will reduce the trade deficit, by making US exports cheaper to foreigners and imports more expensive for people living in the US. The falling dollar and lower trade deficit is supposed to be one of the main dividends of deficit reduction. In fact, the lower dollar and lower trade deficit were often touted by economists as the primary benefit of deficit reduction until they decided to change their story to fit the Clinton mythology.
The high dollar of the late 1990s reversed this logic. The dollar was pushed upward by a combination of Treasury cheerleading, worldwide financial instability beginning with the East Asian financial crisis and the irrational exuberance propelling the stock bubble, which also infected foreign investors.
In the short-run, the over-valued dollar led to cheap imports and lower inflation. It incidentally all also led to the loss of millions of manufacturing jobs, putting downward pressure on the wages of non-college educated workers.
Like the stock bubble, the high dollar is also unsustainable as a long-run policy. It led to a large and growing trade deficit. This deficit eventually forced a decline in the value of the dollar, although the process has been temporarily reversed by the current financial crisis.
Rather than handing George Bush a booming economy, Clinton handed over an economy that was propelled by an unsustainable stock bubble and distorted by a hugely over-valued dollar...
While the Bush administration must take responsibility for the current crisis (they have been in power the last eight years), the stage was set during the Clinton years. The Clinton team set the economy on the path of one-sided financial deregulation and bubble driven growth that brought us where we are today. (The deregulation was one-sided, because they did not take away the "too big to fail" security blanket of the Wall Street big boys.)
For this reason, it was very discouraging to see top Clinton administration officials standing centre stage at Obama's meeting on the economy. This is not change, and certainly not policies that we can believe in.
Loooong Michael Lewis piece in Portfolio on "the end" of the old Wall Street, and how it all came down. Like me, Lewis left the financial brokerage game years ago thinking it was absurd and about to end. I was a decade too early, and Lewis left almost two decades early. Who knew the madness could go on so long?
Good piece. Read it.
Six months after Liar's Poker was published, I was knee-deep in letters from students at Ohio State who wanted to know if I had any other secrets to share about Wall Street. They'd read my book as a how-to manual.
In the two decades since then, I had been waiting for the end of Wall Street. The outrageous bonuses, the slender returns to shareholders, the never-ending scandals, the bursting of the internet bubble, the crisis following the collapse of Long-Term Capital Management: Over and over again, the big Wall Street investment banks would be, in some narrow way, discredited. Yet they just kept on growing, along with the sums of money that they doled out to 26-year-olds to perform tasks of no obvious social utility. The rebellion by American youth against the money culture never happened. Why bother to overturn your parents' world when you can buy it, slice it up into tranches, and sell off the pieces?
At some point, I gave up waiting for the end. There was no scandal or reversal, I assumed, that could sink the system.