Bush's Faux Economy
By Ed Young
As a starter for describing the ‘faux economy’, I will address the now infamous housing marker. So, why is everyone surprised that the housing sector is going bust? After the Bush big tax break for the rich, what did the recipients of his largesse do? They went out and bought million dollar homes on the east and west coasts. If they did not get enough from the tax break, they mortgaged their homes to invest in million dollar homes and during the initial frenzy the big builders over build. What had been a buyer’s market at the beginning had now turned into a seller’s market. The windfall also caused these shortsighted nouveau riches to buy expensive foreign cars. The rush made the ARMs to rise. These buyers were quickly stuck with the value of their real estate investment dropping. Loan defaults and home foreclosures soared. The seller’s market turned back into a glut of homes on a buyer’s market with no buyers and home prices kept sinking.
At the same time, these economically cornered families were also caught in the huge transition in professional labor market. Not only were corporations outsourcing skilled labor to foreign countries but also were in-sourcing cheaper professionals. The squeeze on the Middle and Upper Middle classes meant that Mid-economic-level business owners, e.g. department stores like Bloombergs, Lord and Taylor’s, or even Dillards, had no one left to buy their products. This also left US professionals competing for lower salaries. As the dollar fell on international monetary exchanges, their money could not buy as much as it used to. The tax boon left those who were just rich enough to be saddled with rising debt and not rich enough to weather the effects of their reversal of fortune.
Other factors compounded the desperate situation of the ‘not-quite-rich’. These folk also initially had bought stocks and pushed the market up but the ones selling at these high prices were the large corporations. A cycle that was vicious for these ‘not-quite-rich’ had begun. As big corporations stopped selling for a high profit, the market would drop. When the market dropped, highly liquid corporations bought back their own stock. A rapidly cycling volatile market ensued.
At this point, corporations were positioning themselves to go private. When they succeeded in this financial coup, the big investors and big corporations switched to investing their stuffed coffers overseas in booming countries like China, India, and Malaysia. This meant that the small, individual investors had not only lost money when the market had dropped and their income sources were dwindling, but their options for investing and recouping their losses were diminishing. Those caught in this downdraft were also the ones greatly, adversely affected by the rise in energy and gasoline prices. High debt, high interest rates, market losses, homes they can’t sell, downward mobility, increased expenses meant that the Bush boon had ghastly backfired on them. These were the people hit hardest in this ‘selective’ depression. The media collaborated by presenting a smoke and mirrors act touting a glowing economy. There was now what we should call a ‘faux economy’.
The trick worked because of the rising stock market due to profits from padding contracts to defense industries; shifting their stocks in foreign markets that were on the rise; and massive corporate buy-backs at low prices that kept their liquidity safe and helped their portfolios look plush. Also helping corporations was the fact that Prime rates were down because of lack of demand for the US dollar. At the other end of the see-saw, the ‘not-quite-rich’ were hurting because in the sub-prime market, mortgage rates were up due to delinquencies and foreclosures.
It is a ‘faux economy’ all right because everyone but large corporations has been suffering. However, large corporations were stuck with one consequence of the bust for the upper middle, middle, and lower economic classes. (*see note below.) Employees of large corporations who were facing the possibility of losing jobs or bankruptcy, the stress got to them. When crises hit, the agonizing distress made the now exploited, moderately privileged classes physically and emotionally ill. Workers compensation for both the laid off and for the current injured or ill employees went up. Medical insurance premiums went up. Contrary to traditional trends for booming economies, violent crime went up. Oddly, the family-values-conservatives made no mention in the media of the fact that Bush’s booming faux economy was directly resulting in a rising crime rate in the categories of white-collar crime and murder within families.
Legislators were scrambling to save their wealthy constituents back home by sneaking pork into any bill they could. At the same time, campaign funds for conservatives were drying up, mainly due to the Iraq war and its cost to the mid-level businesses, and non-defense corporations like the auto industry and the health insurance companies. Lawmakers became easy prey to lobbyists for large corporations, especially health insurance and pharmaceuticals. In addition, mid-size and even large corporate farmers were hit hard by the influx of cheap produce from foreign competitors. Many like the Iowa farmers looked to ethanol to save them and they successfully lobby for Bush to help out on that front.
Ironically, the ones benefiting the most from Bush tax relief and subsidies were the big oil companies. They were seeing the rapidly rising demand around the world, which was good for them in the short run, but was causing them to look closely at the dwindling prospects for new drilling. They saw the ‘handwriting on the wall’ and it said ‘alternative energy sources’ like solar, wind, and especially hydrogen and they knew they had better hustle to get Bush to protect them. They began vigorously lobbying for protection and staving off the energy revolution. One target was to prevent US automakers from switching, as had Toyota and other foreigners, from going hybrid or hydrogen. Being one of them, Bush readily aligned himself with ‘Oil’. Global instability in the oil market had made Bush’s Iraq war a great benefactor to the oil industries.
His Iraq war coupled with Islamic conflicts and brush warfare bursting out all over in developing industrial countries resulted in a huge benefit for the arms and defense industries. Ironically, opposition in countries like Venezuela, Nigeria, and elsewhere with foreign production, was not just decreasing supply and upping the profits from demand, but also threatened huge losses to big oil companies in both the long and short term. This problem could be laid at the foot of none other than their ‘friend’, Bush.
The word quagmire, oft used for Iraq, could be reasonably applied wherever one saw the Bush foot print, whether abroad or at home.
Early in 2000, as Bush was pushing huge tax breaks for the rich, eight Nobel Laureate economists had predicted that it would be a disaster for the US economy. Of course, they were ‘academics and scientists’ and only a fool would listen to them. And, of course, they foresaw the dire consequences correctly. However, today the predictions of these wise Nobel Laureates are never mentioned and the White House, with Paulson as principle economic spokesperson, and with graceful mastery of doublespeak, convince the people that we are in a glowing, growing economy. Bush, Fox, and the rest of the media, have succeeded in selling a ‘faux economy’ to America.
*(Working or lower class is not discussed here because everyone knows their wages have been stagnant for over a decade and with migrant workers there will be no push to increase them for the foreseeable future.)
Edwin Young is working on a book tentatively called, "Can There Be a Paradigm Shift in Psychotherapy?" Links to some of his essays can be found at The Natural Systems Institute