First, if anyone is wondering why one section in Part II is in different type, the answer is I don't know. When I prepared it and when I recall it into edit mode, it doesn't appear any differently than other entries. So, it was not done on purpose to highlight that section, just some kind of glitch. This is not the first glitch I have run into on this website.
BASIC PROBLEMS WITH THE US ECONOMY
If anyone had asked me in the last 3 years I would have told them that I believed that there are basic structural problems with the US economy. A year and a half ago I took all my 401(k) money out of mutual funds and into a low yield, secured fund that is guaranteed not to go down. I then got a first mortgage on my house which I had owned free and clear in order to have cash on hand. Am I a financial genius or what? The answer is NOT! I just happened to read the right book which crystallized some inchoate ideas which I had had for some time. I strongly recommend the book Wealth and Democracy by Kevin Phillips for anyone concerned with the direction which our country has been going in for the last several decades. Hopefully, Obama will change that direction.
As I mentioned previously, Phillips contends that our economy has gone from production to financialization (manipulation of money) and he uses several historical examples to show how this leads to a serious decline in national power. He gives further treatment to this theme in his books American Theocracy and Bad Money. The latter, although it seems to have been thrown together quickly, has some interesting recent economic data which show the nature and the depth of the problem. Latest figures are that the US has lost over 1 million manufacturing jobs in the last year and over 4 million since 2000. Even when the economy was doing okay and the manufacturing jobs were replaced with other jobs in the economy, these other jobs were largely service jobs that paid anywhere from 20 to 40% less than the jobs they replaced and had fewer benefits. This is why the number of people without health insurance steadily climbed during athe Bush administration. In addition, there has been a greater concentration of wealth in the top 1% and even more in the top one-tenth of 1%. This, imbalance, I believe has contributed to our economic meltdown. For example, this is why so many people refinanced during the real estate boom (using their equity like an ATM machine) and why so many people resorted to subprime loans with risky provisions--it was the only way they could qualify. Another problem is the concentration of business wealth in fewer and fewer mega-corporations. When was the last time that the government used anti-trust law to stifle or even modify a proposed merger or acquisition? The last one I am aware of involved the merger of two natural food chains, hardly a major impact on the economic system. In the meantime we have seen major financial institutions grow too big to fail. Citi Bank, for example, has millions of depositors in something like 140 countries. The LA Times 3/9/09, page B1 has an interesting article on AIG. In addition to having 74 million insurance customers world-wide, it has a subsidiary that leases commercial planes to nearly every major airline. Thus, should it go belly-up it would have serious repercussions on the airline industry. The failure of Lehman Brothers led to the credit freeze. One can cite still other examples, but this will suffice for now.
Additionally, as we have seen, while economic concentration has greatly increased, government regulation has greatly decreased. The SEC ignored Bernie Madoff despite getting a number of warnings for almost 10 years. The Federal Reserve could have reined in all those crazy loans but chose to look the other way, a serious mistake that Alan Greenspan now admits to. The Glass Steagall Act was repealed, a 1994 law lifted restrictions on interstate banking and in the late 1990's derivatives and futures trading in oil and financial instruments (bucket shops previously alluded to) were deregulated. The financial sector took advantage of the situation and maximized their short term profits by increasing their risks. Next, what to do?
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