Most of the time, in political history and in economics, things travel along a fairly predictable and relatively stable pathway. Debate is contained within a fairly narrow set of conventional and familiar choices. When it comes to economic policy,
August 8, 2011

Most of the time, in political history and in economics, things travel along a fairly predictable and relatively stable pathway. Debate is contained within a fairly narrow set of conventional and familiar choices. When it comes to economic policy, the Federal Reserve can lower interest rates or raise them a little. The government can pump a little more spending into the economy or a little less depending on the rate of growth. The economy generally starts moving again relatively quickly after a recessionary slowdown. In terms of political history, the more progressive party and the more conservative party have periods where one or the other is more powerful, but they each tend to have enough power to slow each other down, to check and balance each other. They resolve their legislative differences through a pattern of competition and compromise that is, again, fairly predictable and stable, and in periods of national crisis they come together and get big things done.

These long periods of relative stability and predictability aren’t nirvana — most people's quality of life and economic condition may not be getting better and might be getting gradually worse, as we have seen in the last 30 years of our country's history. And lots of problems tend to go unresolved in these periods as well, as they don't tend to be periods of major reforms or progressive advance, and people on the bottom end of society don't tend to get lifted up. But stability and predictability at least keeps society chugging along, the economy keeps moving, and citizens have a sense of what they can expect from their government.

Every so often, though, things get so out of whack that we come to a moment of maximum crisis. In these moments, conventional wisdom not only doesn't work but actually makes things far worse. It happened with our economy in the Great Depression of the 1930s, and it happened with our political system in the Civil War era of the 1850s-60s. We are now, on a worldwide scale, in such an economic moment. What is even scarier is that increasingly it feels like we are simultaneously moving toward such a moment in our political system as well. At least in the 1930s, the political system worked well: voters kicked out the political party who had screwed things up, and the new government got things done that helped lift us out of the depression. And at least in the 1860s, the economy was functioning reasonably well in the Civil War era.

Right now, it feels like both our economy and our politics are increasingly dysfunctional, and that is an incredibly dangerous place to be.

Whatever happens next in our country's politics, the economy has become completely derailed. We stopped maintaining the tracks, we stopped checking the brakes and engines on the train, and we have a hell of a crash on our hands. Between the U.S. and Europe, our answer has been to keep bailing out banks (when countries who owe a lot of money to bondholders are bailed out, it isn't the people or government of that country that is bailed out, it is the bankers who own the bonds) hoping that one more bailout will solve things. When government spending goes up and tax collections go down because of the terrible economy, and the bankers demand we "tighten our belts,” it just makes things worse. The Federal Reserve, which has already poured tens of trillions of dollars into saving the banking system, and already has kept interest rates at historically low numbers for years, is mostly out of weapons to fight this battle.

The train has already wrecked, but there's another locomotive with weak brakes coming full speed down the same track.

The only answer is to reject conventional wisdom economics, and start to look at big ideas that go against the established economic ideology, the ideology dominated by the Chicago school economists who believe that free markets solve all problems and that bankers are the masters of the economic universe. Both Europe and the U.S. need to take off the chains that tie us to these monstrously big megabanks, and their utterly corrupt ratings agencies. These enormous banks, far more than any other institution, caused the big train wreck of the economy with their too complex financial "innovations" and their big housing bubble, and now they are making things far worse by using their political and market power to force round after round of government austerity programs and bailouts. It is the big banks as well that have created the black hole of a housing market where prices continue to drop, more and more homeowners are going underwater on their mortgages, and foreclosures continue unabated. That black hole of housing will keep this country locked into a flat-lined economy for as far as the eye can see, unless and until policymakers finally stand up to the bankers and force them to write down those mortgages.

It is, in fact, writing down debt — major amounts of it — that will be the biggest thing that helps this economy recover. We need less debt in our entire economy, and rather than kowtowing to the ones that wrecked the train by one bailout and self-defeating austerity program after another, we should be demanding that they write down a very large share of the debt they themselves helped create- in housing, in government debt, in our trade debt, and in other forms of debt. We need to do something else that bankers hate as well: encourage just a little bit of inflation. Worrying about inflation overheating when you have this amount of economy-wide debt, and the biggest danger in front of you is deflation from a dead economy, is quite literally insane. If inflation went to 4 or 5 percent, it would be a good thing right now because it would make all that debt easier to pay off, and it would mean that the economic engine would start running again.

Finally, we need to focus our efforts — focus like a laser beam, as my old boss Bill Clinton used to say — on creating good jobs with good wage levels. Continually cutting spending in a moment like the one we are in now is utterly self-defeating, because every time you cut, more jobs are lost, more income and the spending that fuels the economic engine is lost. Right now is exactly when we need to be rebuilding our falling-apart infrastructure, hiring more teachers, investing in more job training and R&D, and helping the industries of the future get a solid start here in America. Not just the best but in fact the only way to balance our federal budget in the long run, as we learned in the 1990s, is for every American in the workforce to have a job, a job whose wages are heading up not staying flat.

So stop listening to these Wall Street bankers and their entirely corrupt ratings agencies that rated thousands of derivative deals and credit default swaps AAA when they were pieces of absolute junk. Stop listening to the crazies who think we can cut our way to prosperity, because it has never worked and won't work now — especially now. We need a strong and expanding middle class far more than we need big Wall Street banks with good balance sheets and big bonuses for their execs.

The ancient Israelites had something they called "the year of our Lord" where all debts were forgiven. In Jesus' very first sermon, he announced that he had come to "bring good news to the poor, proclaim liberty to the captives, bring the blind new sight, set the downtrodden free, to proclaim the year of our Lord.” We need some good news for our poor (which more and more of us are becoming). We need liberty for the captives of big banks and right-wing economic policy. We need the new sight that comes from taking off the blinders of the conventional wisdom that is strangling us to death. We are all downtrodden except for a very wealthy set of elites who are trying to economically enslave us, and we need to be set free. And we most assuredly need a modern version of the year of our Lord, where unsustainable debt is written down by these bankers who have had their run of the store for far too long. It is time for big, bold new ideas that will clean up the train wreck, rebuild the tracks and engine, and finally get it moving again. And it would help a lot if those new ideas were motivated by these kinds of 2,000-year-old values.

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