Monday, September 29, 2008

Is The Sky Falling? (yet?)

Even as the House of Representatives was giving a firm vote of no-confidence to the purported resolution of an economic rescue plan, claimed to be as fair to Main Street as it was palliative to Wall Street, Ann Pettifor, author of The Coming First World Debt Crisis, was putting the finishing touches on a Viewpoint for the BBC NEWS Web site on why the plan would not work. Her argument is based on the premise that, regardless of what Nancy Pelosi may have told us all last night, the only real beneficiaries of this plan would be "a small number of shareholders and creditors with stakes in Wall Street financial institutions - people like investment guru Warren Buffett [one of the plan's champions] - and potentially some foreign banks." More important, however, is that, while Joseph Stiglitz framed his opposition by paying more attention to what problems needed to be solved, Pettifor see those like Stiglitz as proposing "an overhaul of the whole economic system" and has taken the trouble to compile a four-point plan:

  1. "That means, first, dumping the orthodox free-market zealots responsible for the policies that got us into this mess. Frederick Hayek's and Milton Friedman's de-regulation policies have already been dis-credited, with Republicans obliged to disown Margaret Thatcher and Ronald Reagan's contempt for government."
  2. "Second, it will be vital to restore to the Federal Reserve and other central banks the power to set the rate of interest - across the whole spectrum of lending, so that all rates can be lowered on the massive debts incurred across the board in countries that followed the Anglo-American economic model."
  3. "Third, we must abandon the policy of holding down wages and other forms of compensation, especially if we want people to repay debts, and help salvage the banks. Jobs will have to be protected, or even created by government, and incomes must rise."
  4. "Fourth, we have to simply write off the debts of those poor people who cannot ever repay. Just as we write off the debts of companies or governments that can no longer pay, so we must recognise that many citizens are effectively insolvent. The refusal to acknowledge this truth lies at the heart of Mr Paulson's plan - and that is why his plan will fail."

Note how Pettifor's approach complements Stiglitz' problem analysis by taking a social approach, rather than beginning with technical models of financial behavior. To some extent she is saying, "Markets do what markets do, whether or not there are ideologues trying to control them; so get the ideologues out of the way." Next she tries to fix the problem that lack of regulation has undermined the Federal Reserve's primary instrument of control, taking down Main Street's confidence in the Fed as a stabilizer with it. Most important, however, is that her final two points suppress any interest in Wall Street by seeing to what may be the most urgent needs of Main Street.

Is anyone in Washington paying attention to this woman?

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