Simon Johnson writes in praise of Arianna Huffington's new book on "Third World America." Here's what Johnson -- one of the best economists around -- has to say.
Her point is that we should not think of the last financial crisis in isolation, but rather as the outcome of a longer-run pattern of behavior.
Excessive consumer debt is an outcome of prolonged inequality – in trying to remain middle class, too many people borrowed too much, while unscrupulous lenders were only too willing to take advantage of such people.
Bingo.
The distribution of income in the United States is undoubtedly becoming more unequal. Specifically, over recent decades, it has become harder for people with only a high-school education to build a secure middle-class future for their families.We can argue about proximate causes, including the relative roles of new technology and globalization, but there is no question that unionized jobs, well-paying assembly-line work and prosperous small-business niches have all tended to disappear.
The financial crisis may be behind us, but the link to the likely intense debate this fall regarding fiscal policy is direct. We are told that fiscal austerity requires outright and immediate further cuts in the benefits previously promised to people at the federal, state and local level.
Never mind that this is simply not true — at least in the form currently presented (here are a primer on short-term issues and another on the longer-term perspective). A vocal class of people — including some at the upper end of the income distribution – incessantly insist that entitlements must be cut while refusing to address the real causes of both our recent surge in government debt (the financial crisis, caused by perverse incentives in the financial system) and the genuine longer-term issues we face (which are about controlling the future increase in health care costs, not cutting the level of benefits today).
The self-described fiscal conservatives really cannot be taken seriously.
Present-day fiscal conservatives are deeply irresponsible. We know they caused the recession. Johnson hints it may have been intentional, something many of us have believed and written about right through the Bush administration.
...There is a striking similarity between the longstanding stated intention to “starve the beast” (meaning to press for reduction in government by creating binding constraints, like a perceived crisis) and what we are seeing play out today.
In my view, "starving the beast" has been partnered by a determination to blame the victim -- to demonize those who lose jobs and homes as a result. They weren't "smart enough."
If we're smart enough we'll quit giving a megaphone and power to the real beasts. Yes, that's a big "if." Contemporary self-styled fiscal conservatives, Johnson writes, "are not being fiscally responsible, and they are well down the road to exacerbating developing world-type problems in the United States – and to creating the conditions for another financial crisis."
