8
'We have a very distorted economy,' Greenspan says
Former Federal Reserve Board Chairman Alan Greenspan
To view this content, Javascript must be enabled and Adobe Flash Player must be installed.
TEXT OF STORY
Kai Ryssdal: I might have mentioned this before, but for a while during the depths of the financial crisis, we had a cliche wall set up in our offices. Phrases that we tried real hard not to use. Right up at the top was "from Wall Street to Main Street," thanks to the rampant overuse of that phrase in all the stories about the disconnect between banking and the real economy.
Two years later on, the disconnect is still there. Over the weekend, former Fed chairman Alan Greenspan took note of how uneven -- or even one-sided -- the recovery's been. In fact, Greenspan says there are "fundamentally two separate economies right now:: Banks, big companies and Americans at the top of the income curve are doing just fine -- but for the rest, Greenspan said, the recovery seems to be in a pause.
Here's our senior business correspondent Bob Moon.
Bob Moon: It's about as plain spoken as the former Fed boss has ever been:
Alan Greenspan: Our problem, basically, is that we have a very distorted economy.
Alan Greenspan told NBC's Meet the Press it's high-income Americans who are doing most of the spending these days; big banks are, as he put it, "doing much better," and large corporations are "in excellent shape."
Greenspan: The rest of the economy, small business, small banks and a very significant amount of the labor force, which is in tragic unemployment, long-term unemployment, that is pulling the economy apart. The average of those two is what we are looking at.
And all those federal spending programs that were supposed to fix things? University of Maryland economist Peter Morici says they haven't done much.
Peter Morici: Most of the rescue money went to the large New York banks; it recapitalized them. While the smaller banks remain burdened by toxic assets, and they're the folks who make loans to small to medium size businesses. They can't get credit, so they can't expand and put people to work.
Morici says the big banks have been willing to lend -- mostly to companies doing business abroad.
Morici: With demand growing very rapidly in Asia, thanks to their undervalued currencies, they expand there and make big profits.
But wages here at home have been stagnant for decades -- as far back as the 1970s. Diane Swonk is chief economist at Mesirow Financial. She says that's about the time policy makers lost the focus on retraining American workers, in favor a less costly shortcut: Just let everybody borrow more.
Diane Swonk: We found it more politically expedient to use a very advanced financial system to fill the gap in wages by giving people access to credit, perhaps when they couldn't even service the debt.
Swonk says it's all come home to roost in this split recovery.
Swonk: We've seen enormous political backlash, and there is no comfort for anyone who's wealthy, if they've got to deal with a pretty big class warfare, at the political level, via taxes or anything else.
She says it's yet another after effect of the meltdown that's likely to linger for a long time.
I'm Bob Moon for Marketplace.
Liked all the comments I've seen, from the general opinions on the nausea inducing blather from Greenspan to the knowledge and understanding that Reagan and the republicans were and are selling the same old snakeoil sold to our more savvy great great grandparents. Before WWII depressions occurred on average every 8-10 years, lasting 3-5 years, with average GDP being 1.7%. And to David, you should read Lenin's analysis of how European colonies managed to delay the Marxist prediction of the collapse of capitalism by temporarily shifting the contradictions overseas. I don't buy most of Marxist theory, but I find alot of interesting material for thought.
It is amusing, at best, to hear such words of wisdom from the mouth of the man who helped engineer the "two economies" during his tenure at the Fed. Also, the recovery is not on "pause" for many Americans; the sad fact is, the "recovery" never began for the majority.
To my mind, there is little mystery to this "two economies" situation. Over the last two years, many large companies have laid off huge numbers of workers, and have put a similarly huge burden on the workers left behind. These folks have had to pick up the load or risk getting laid off themselves. Management has discovered that, hey, they can do the same amount of work with fewer employees! Cool! More profit! What they are not doing is talking to the line staff who are getting worn pretty thin. In other countries, this would result in a workers protest or general strike, but we don't have that tradition in this country and like I said before, the workers are worried about keeping their jobs.
The real question is, how long can this imbalance continue? I think the current situation is being reflected in lower customer service quality and longer turn-around times. Middle management needs to step up and request staffing help so that current employees can get a break and new blood can be trained before the retirees start leaving.
It is a remarkable thing. We learned, or rather our grandparents learned the hard way, that unfettered capitalism creates exactly what we have today, the distorted economy favoring big banks, corporations and the wealthy. It also was a time of boom and bust cycles, with devastating recessions/depressions occuring with increasing regularity.
Thus, when the Great Depression hit, structural changes were made to inject the government into regulating the "market" which on its own produced socially immoral and unsustainable economic structures.
Then Ronald Reagan and the Republicans came sashaying in in 1980 with cynical myopia, claiming all this was bunk and that the Markets were god. It was BS then and it is now. We are just painfully relearning the lessons of our grandparents. The sad thing, though, is how the Republicans and exploited the civil rights movement and the women's movement, appealing to the racist and sexist sentiments of the poor and middle class whites, especially men, to get them to ignore this radical reversal back to 18th century economics which impoverished them! And they do it willingly and cheering. They are doing it now, too, with the whole immigration debate. What a bogus pile of crap. Simple distraction, appealing to the dark demons of humanity, in order to maintain the wealth and power of the wealthy individuals and large corporations. Until the working people of America see through the racist and sexist and xenophobic shell games the Republicans have played with them, and realized they've been sold down the river, we will be in this culture war. It suits the powerful in America to have it a culture war. Keep the masses distracted and entertained while they pick their pockets.
I thought "trickle down" economics was supposed to fix all of this. Seems like all the "trickle down" is going overseas.
Americans over the past several years enjoyed the "ice cream and brownies" of globalization; cheap prices at wal-mart. But now they balk when it comes to eating the "peas and carrots" of globalization; the lower wages and paycuts. Hope they enjoyed the 'seven years of plenty'; looks like the seven years of famine are now in full swing.
I predict the long term result will be a great leveling of standards of living around the globe. Countries that have strong (manipulated) currencies and low costs of production (cheap labor, weak environmental controls) will see standards of living rise. The developed world will see trends in the opposite direction. The economic system today does does not allow for something called "social justice". It's all about who can make something for lowest cost. Another consequence will be a "winner takes all" distribution of wealth among individuals. The lucky, the extremely talented, the wealthy, will get ahead. The rest will fall to the bottom. No more middle class.
Over ten years ago while still practicing as a family lawyer I deduced from what I was seeing of middle and lower middle class clients' financial documents that credit cards had become the new company store. i felt then that a tacit decision had been made that rather than pay people a living wage, first society sent both partners in a marriage to work and when that wasn't enough, rather than raise wages, the wealthy decided to lend the ordinary workers, blue and white collar, money so they could keep consuming. I predicted then that some day the house of cards would come down. Unfortunately no one seems to be speaking about social justice and the need to pay people enough to allow them even to provide necessities without borrowing. People don't even live paycheck to paycheck, they live paycheck to payment and juggle until a catastrophe occurs. When it occurs to enough people, the economy collapses. This was all so predictable.
